Source : Perth Now news
A leading financial expert has revealed the biggest red flags for Aussie homeowners battling with soaring costs and multiple rate rises – as well as his top tips for managing home loans going into 2025.
The Reserve Bank of Australia is widely tipped to announce a rate cut as early as February, which would be for the first time the bank has made such a move in more than two years.
This is despite the latest Consumer Price Index (CPI) indicator rising 2.3 per cent in the 12 months to November 2024.
However the RBA’s “trimmed mean” measure of underlying inflation fell from 3.5 per cent to 3.2 per cent – a figure considered within their target range.
Even if the aforementioned rate relief is introduced, finance and money expert Chris Foster-Ramsay says it will only take the edge off the budget for Australians with a current loan.
Any relief would also take time to filter down, meaning it may not be instant for the average homeowner.
“From what we’re hearing, rates may fall once, twice, or potentially even three times in the near term, and this will still mean that interest rates could return to the levels they were at pre-pandemic,” Mr Foster-Ramsay, the director of Foster Ramsay Finance, says.
“Therefore, I can’t see things going back to world record lows in terms of rates anytime soon.”
Mr Foster-Ramsay says any rate relief extended by the RBA would likely be “staggered”.
He estimates it could be at least 30 days – or up to 60 days – before any official rate repayment changes.
Even then, this may not be automatic on the bank’s end, he says.
“This means that borrowers may need to call or request the change to the lower repayment amount following the rate reduction,” Mr Ramsay says.
“Typically, it takes around three to six months before families start to feel the effects of an official rate change — up or down.”
According to the Australian Bureau of Statistics’ (ABS) latest inflation figures, much of the rise in the CPI indicator was attributed to increased costs for essential items – including food, rents and fuel.
These were offset by falls in electricity (-21.5 per cent) and fuel (-10.2 per cent).
The price increase for essential items feed into Mr Foster-Ramsay’s theory on the biggest red flag for homeowners going into 2025: the cost of living.
“As long as interest rates remain at their current levels, the family budget is likely to remain stretched because of the associated costs of home loan repayments or rent,” he says.
“(I) don’t see 2025 being a make-or-break year in terms of the negative.
“Sure, there are those facing challenges with their current level of lending, and I hope that any interest rate relief provided makes life easier for them.
“But on the flip side, there are those who have been able to prepare to upgrade or renovate and have been waiting for the world to calm down following the pandemic.”
Mr Foster-Ramsay says shopping around for a better deal – whether that be through your broker, bank or lender – is a crucial step to help manage repayments and keep your home loan under control.
Understanding how much equity might be in a property is also a key factor, which he says can facilitate a formal interest rate review of your loan facility.
“It’s often even more effective if you can support this with evidence of being a great customer, such as making regular repayments and the duration of your loan,” Mr Foster-Ramsay says.
“These factors all contribute to the assessment of a rate review … so don’t underestimate the importance of refinancing if your current lender isn’t accommodating.”
Homeowners also need to exercise caution about paying significantly more than the market rate for a product available elsewhere at a similar price.
“Ensure that you’re making accurate comparisons when analysing the data,” Mr Foster-Ramsay says.
“Be wary of refinance lender cashback offers or promotional interest rates for a limited time, believing you can simply set it and forget it.
“If careful and regular attention isn’t given to the home loan rate, it’s highly likely that you will negate any savings you’ve previously achieved.
“When it comes to hidden fees, it can be challenging to determine if a specific change to a banking product or loan will incur a fee due to a modification or closure. The best approach in this situation is to speak with your banker, lender, or broker and ask them to clarify any fees that may apply.”
Top tips for homeowners in 2025
- Ring your broker, banker or lender and negotiate the best deal for your circumstancesHome loan rates and deals change almost weekly, and every lender wants to keep your business. Don’t remain loyal for the sake of it, it could end up costing you more money.
- Use a budgeting or money management appFrollo, Spriggy and Beem apps are available for both Android and iPhone and will help you track your spending, identify trends, and set reminders for upcoming bills and direct debits.
- Log into your banking app dailyGive your bank account attention daily to ensure you’re in full control of your money. You need to know what’s coming so you can quickly remedy any unknown charges.
