Majority of home loan borrowers regret their mortgage choices: Research

The findings come in the wake of the Reserve Bank of Australia's (RBA) most aggressive rate-hiking cycle in history, which saw the cash rate surge from a record-low 0.1% in early 2022 to 4.35% by late 2023.

Most common mortgage regrets

Among more than 1,000 mortgage holders surveyed, the most cited regret was not preparing for interest rate hikes, reported by nearly one third of those with regrets.

Additionally, around one in five regretted not fixing their interest rate or not locking in a longer fixed-term rate.

See also: What to do if your home loan interest rate goes up

These regrets were most common among borrowers who purchased their home between 2016 and 2020 – a period when interest rates were at or near all-time lows.

Many borrowers who entered the market in this low-rate environment may not have fully anticipated the financial strain of rising rates.

The findings come as anticipation of the first RBA rate cut in more than four years amps up.

Recent inflation figures left experts and traders largely convinced the central bank board will announce a cash rate cut – bringing it to 4.10% – when it emerges from its upcoming meeting on 18 February.

Preparing for rate changes now to avoid mortgage regrets

According to Two Red Shoes mortgage broker Brett Sutton, homeowners should take proactive steps now to prepare for future rate changes.

^{Image: Brett Sutton from Two Red Shoes, supplied}

He advises homeowners to get across their home loan interest rate and terms, monitor interest rate trends, and assess their financial goals.

"Borrowers should familiarise themselves with their home loan's interest rate, type (fixed or variable), and any associated fees or penalties they face," Mr Sutton told Your Mortgage.

"Stay informed about economic indicators and announcements from the RBA that influence interest rates [and] determine your long-term objectives, such as paying off the mortgage sooner or reducing monthly payments, to align with potential rate changes."

Mr Sutton also encouraged borrowers to reach out for professional, personalised advice from a mortgage broker if needed.

Unprepared home loan borrowers more often taking action to reduce repayments

Homeowners caught off guard by interest rate hikes were far more likely to take drastic steps to manage rising costs, according to Your Mortgage's research.

They were twice as likely to switch to interest-only repayments or extend their loan term in response to higher rates.

Unprepared borrowers were also significantly more likely to have applied to defer their home loan repayments (4% compared to 1%) and for hardship assistance from their lender (8% compared to 1%).

Switching to interest only repayments, deferring home loan repayments, or extending the term of a home loan can reduce mortgage stress.

While switching to interest-only payments, extending loan terms, or deferring repayments can ease short-term financial stress, these actions typically increase total interest costs, as the loan takes longer to repay.

However, nearly half (46%) of surveyed borrowers said they haven't made changes to their home loan despite rising rates - while just one in seven refinanced to a lower-rate mortgage product.

How to avoid mortgage regret when buying home

Beyond rate regrets, many surveyed home loan holders also reported regretting borrowing too much (9%), putting down too small a deposit (10%), and their choice of lender (6%).

While common, these regrets are often easily avoided by securing a sure understanding of the home loan market, a loan's terms and conditions, and your capacity to repay a mortgage, Mr Sutton said.

"Ensure that mortgage repayments will fit comfortably within your budget, even if interest rates rise in the future," he advises would-be borrowers.

"Research and compare various loan products to find one that best suits your needs, pay attention to interest rates, fees, and loan features, [and] fully comprehend the terms and conditions of any mortgage agreement before committing."

Finally, he recommends borrowers reach out to a mortgage broker if they're unsure of their options and wish to gain insights into the mortgage products that best suit their needs.

---

Advertisement

Important Information and Comparison Rate Warning

 

_{Image by Drazen Zigic on Freepik}