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Welcome to the finance update for the week ending 13 May, 2023.
In an announcement on Tuesday, Australia’s largest bank CBA confirmed that effective June 1, it would no longer offer cashback payments on new applications for home loan products. Whilst the other major lenders are yet to change their position on such offers, it’s widely expected that they and other lenders will follow suit, which we believe will be a positive move. The incentives whilst seemingly attractive, often had a sting in their tail for brokers and consumers alike.
In this week’s newsletter, we take a look at the compounding cost of mortgages which illustrate that the cost of home ownership for those who need finance, is well beyond just the sticker price on the property.
For most Australians, a loan of around $500,000 is going to be a significant amount of money, but what would a mortgage of that size look like in terms of regular repayments and total interest costs across the life of a loan? Here’s an example based on a few different interest rates.
Monthly Repayment On A $500,000 Loan
So even with a very low rate (which is unlikely to stay that low over 25 years), a mortgage holder with a $500,000 loan would still need to fork out at least $3,000 per month in repayments. And that’s not taking into account any other costs like loan fees.
How do the numbers play out across different states and territories? Using an average variable rate of 6.12% p.a. and assuming a 25 year loan term, we can see just how much mortgage costs can vary across markets.
Average Mortgage Costs Across Australia
The above table illustrates the real cost of home ownership in Australia, which is considerable no matter what state you’re in.
We ensure our clients always have the most suitable loan for them, not just at the outset but also ongoing, to ensure the cost of ownership is as little as possible over the journey.
Any changes in interest rates from last week are highlighted in orange.
Note – Increases announced by lenders as a result of RBA decisions normally take 1-2 weeks to come into affect.
Standard Variable
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.
1 Year Fixed
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.
