When it comes to the impact the latest interest rate rise has on older Australians, it’s often about more than personal mortgage worries.
The latest figures from the Australian Bureau of Statistics (ABS) reveal that more than half of Australian first home buyers in 2019-2020 were 25 to 34 years old, and the reality is that the higher mortgage repayments driven by the 2 May rate rise will have a direct impact on a growing number of those over 50.
Older mortgage holders will feel the financial pinch
The ABS figures show that 62 is the average age at which a mortgage in Australia is paid off. And for retirees burdened by the financial pressure this latest rise from 3.60 per cent to 3.85 per cent – the 11th increase since April 2022 – will put on many Australian households, the struggle is definitely real.
Older Australians also face other potential issues as a result of these interest rate rises such as concern about the financial security of their adult children and/or grandchildren, who may now be facing financial hardship.
Feeling financial pressure to dip into their retirement savings to keep the younger members of their family afloat can add further worry.
With a growing number of older Australians acting as guarantors, there is now an increased risk of some older people losing their nest egg if a family member defaults on their increasingly costly mortgage repayments.
Over-60s who have drawn down on the equity in their home and used a reverse mortgage to help fund their retirement are also feeling the squeeze, as the already high interest rates connected to this type of refinancing climb even higher.
More rate rises expected
For many mortgage holders, the latest Reserve Bank of Australia (RBA) rate rise announcement was an unwelcome shock. Some experts say there may still be more increases to come. Although the rate rises are pitched as a necessary bid to tame inflation, many mortgage holders believed the RBA had paused its run of rate rises, although the RBA has always indicated that rates would continue to lift should economic conditions require it.
In his statement released after the 2 May rate hike, RBA governor Philip Lowe said: “Inflation in Australia has passed its peak, but at 7 per cent it is still too high and it will be some time yet before it is back in the target range.”
With repayments on a $500,000 mortgage rising to almost double the pre-rate rise cost in March 2022, many homeowners wonder how much more they can trim from their budget. And with a percentage of older Australians still committed to meeting loan repayments as they plan for a life beyond retirement, the view of some economists that interest rate cuts may start from early 2024 is something to look forward to.
How have the rate rises affected you? Are you concerned for your family members with mortgages? Why not share your thoughts about the rate rises, including any tips to help people manage in these difficult economic times, in the comments section below.
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