Mortgage rates are a sophisticated subject, with people from all walks of life having seemingly different takes on the matter. Regardless, every homeowner who purchased their house on credit is intimately impacted by their mortgage. And depending on the real estate landscape, there can be vast shifts in mindsets regarding knowing when is the opportune time to purchase a house. In 2023, the rising inflation rates played a part in raising mortgage rates in countries across the globe, with Australia being one primary target of severe inflationary hikes.
This has caused great difficulty among middle-class citizens who don't have the net worth to set up a downpayment for a home—much less pay a mortgage.
That said, at the risk of sounding hopelessly optimistic, it's not impossible to own a home in this lifetime.While your active career choices and financial responsibility play a big part in your purchasing capacity in the future, there are also opportunities to capitalise on current mortgage trends. If you need a glimpse of the current housing market and how you can rise above it, this article will lay down some tips to give you a clearer picture.
With inflation impacting everyone—from business owners and manufacturers to employees and consumers—lenders are becoming more cautious with whom they decide to lend their money.
The reason is obvious: the general population is starting to lose control over their cash flow. This, in turn, increases the risk of people and companies defaulting—which is something that lenders desperately want to avoid. Lenders still rely on customers to finance their business. However, they want to ensure that they can remain profitable with their venture. To do so, and with the inflationary landscape felt by many countries around the world, there's an expectation that these loan providers will be stricter with their lending clients. This move, ultimately, is to protect both themselves and their clients' finances and assets, regardless whether they’re rich and own a mansion or middle-class and own a tiny home.
More than half of the world's population is on the Internet—and the figure is only expected to grow as the tech-savvy Generation Z continues to dominate the digital landscape. As more people within that demographic start transitioning into adulthood, they'll eventually look into ways of financing the things they want—such as a house. Instead of relying on the traditional method of knocking on various banks and seeking quotes from them, these individuals may turn to the platform they know best, the Internet. With that said, we expect that digital-forward lending institutions are more likely to secure a larger market share in the lending industry. On top of that, we can also expect more lending companies to hone their marketing and business development efforts in their digital platform. This can mean better deals for consumers who found their service online, which can lead to a cyclical pattern that essentially increases digitization in this space.
While Australia and the majority of the world have remained resilient in the face of the inflationary crisis these past few months, there’s a non-zero likelihood that it may reach its breaking point sometime in the near future. Australian institutions, governed by FED officials, continue to remain steadfast in their target borrowing rates of 5.25% and 5.5% for this year. However, the Federal Open Market Committee (FOMC) has predicted a possible rate hike later in 2023—bursting this delicate balloon and worsening the chances of homeowners obtaining a house even further. Mortgage rates in America have also shown unideal conditions this past year, with the rate hovering around the 6.5% to 7.5% range. This can pose a challenge to homeowners whose wages don’t reflect the rising prices. However, while rising interest rates look like a bad thing on the surface level, this could eventually be counteracted by increased wages and better deals offered by lending institutes and banks. That said, it’s important to consult a financial professional on the matter before diving into any potentially expensive territory.
As Australians and people from all over the world continue to navigate through economically difficult times, many homeowners are seeking to improve their equity by opting for refinancing. In a nutshell, refinancing is a term that’s defined as replacing a current mortgage with a new one, ideally with better terms. The goal of refinancing is to help you gain better control over your capital amidst the inflationary crisis, usually by securing better interest rates. And as the broader homeownership movements skew to the side of the homeowners, there’s also an increase in these individuals opting into cash-in refinancing. This type of refinancing borrows against the home’s equity and uses the extra cash to consolidate debts, renovate their homes, or address other major expenses.
This presents an opportunity for mortgage providers and lenders to incentivize attractive refinancing options for their clients. Customers can benefit from increased competition among loan providers offering better deals to undercut the competition. But be warned, some loan providers offer exorbitant closing costs or worse terms over the long run. So be sure to do your research wisely and use tools like Westpac's mortgage calculator to get a clearer picture of what contract you’re getting into. More variety in mortgage products.
In most cases, homeowners are given a fixed mortgage or an adjustable-rate mortgage plan that is strictly adhered to throughout the loan. Doing the former can lead to more favorable rates, while the latter could be either harder to acquire or have steeper starting costs. But that may not be the norm any longer. Hybrid mortgages can provide a middle-ground solution for those uncertain about long-term fixed or adjustable commitments. This is a good thing, as moving forward, there’s a likelihood that mortgage products will move away from the static nature of their offerings and introduce more variety in their services. This means that even if you bought a fixed mortgage plan, you can more easily transition to a variable one after a few predetermined years (or vice versa). This can be beneficial for homeowners in navigating a volatile economic environment, giving them a blend of predictability and potential savings if their mortgage contract aligns well with market movements.
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