How to manage a mortgage

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These discounted but still high-quality loans are the very reason why a record over $14 billion was refinanced in August (by nearly 28,000 Aussies), following the record set in June and a slight pullback in July , according to ABS figures.

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The beauty of a change for you, Jess, is that the mandatory 3% stress test is applied to the relevant lender’s rate.

So not only would a refinance make a material difference to your cost-of-living pressures, you should have no trouble taking a new test and qualifying for it.

Which means there is no mortgage jail for you. People only become “stuck” when rates have gone up so much that they no longer have enough reserve income to be approved for even a cheaper loan.

But it makes the need for action urgent. Taken to the extreme, if a household becomes unable to afford long-term repayments, that’s when a bank might start talking about a forced sale.

Before that – and provided the issue is shorter term and largely a function of this Reserve Bank rate hike cycle – all sorts of loan leniency will be available directly from your lender.

You apply to their financial hardship department to see the likely generous new terms that will be offered to you. It may seem counter-intuitive to tell your lender you’re in trouble, but like I said, admissions get concessions.

In your much better situation Jess, just by having both a fledgling loan and way too expensive, you should be able to ease the budget squeeze, almost overnight.

Taking your $350,000 loan from your current rate of 5.99% to the highest rate on the market at 4.28% (this will be the rate on October 21, when the latest increases are implemented), will reduce your required monthly repayments of $2,253 to $1,902, or $351 per month.

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