Rates Are at an 18-Year High: What Paramedics Can Do about their Home Loan

Your income as a paramedic can include shift penalties and overtime and on-call allowances, plus salary packaging, so the full picture matters when you review your loan. The RBA raised the cash rate by 0.25 percentage points to 4.85% on 3 November, and the ABS reported annual inflation of 4.3% in the year to September. You can't control the cash rate, but you can review your loan, your budget and your options.

Key takeaways

• Check what your new repayment will be and when it starts.
• Ask your lender for a lower rate before you consider switching.
• Compare the total cost of refinancing, not just the new rate.
• Consider a cash buffer in an offset account, a loan-linked account that reduces interest.
• Contact your lender early if repayments are becoming hard to meet.

What the rate rises mean for your repayments

A higher cash rate usually means higher repayments on a variable loan, and the RBA has now lifted it five times this year. The cash rate is now 4.85%, the highest level since late 2008. It was the fifth rise this year, and the five rises total 1.25 percentage points.

Example: $600,000 loan, rate rises from 5.50% to 6.75%

Loan details Change $600,000, 30-year principal and interest loan Repayment rises by about $485 a month This is an illustrative example only. Your own figure depends on your balance, term and lender.

Variable loans change now, and fixed loans change when the fixed term ends. Your lender sets the date a change takes effect, so check your notice.

If you are paid fortnightly, consider matching your repayments to your pay cycle so the money leaves your account when it arrives.

Know your numbers before you call your lender

You get a better result from a lender call when you have your figures in front of you. Gather these before you ring:

• Your current rate and loan balance.
• Your remaining loan term.
• Your estimated property value and LVR (loan to value ratio, which is your loan as a percentage of your property's value).
• Any fixed-rate expiry date.
• Your new repayment amount and its start date.

Separate your base pay from shift penalties, overtime and on-call allowances. Note how much of your pay is salary packaged, and whether you expect a station transfer.

If you want a second set of eyes on these numbers, a Loan Health Check is a good place to start.

Ask for a rate review, or consider refinancing

The first step is to compare your rate with what your lender offers new customers, then ask for a lower one. Having at least 20% equity and a good credit score can help when you negotiate. Our page on getting a lower interest rate covers this in more detail.

If your lender won't move, refinancing is the next option. A broker can compare options across a panel of lenders. Banks and other APRA-regulated lenders generally assess your repayments at a rate at least 3 percentage points above the loan rate, according to APRA, while non-bank lenders set their own assessment rules.

Falling property values can reduce your equity and affect your LVR, your pricing and whether LMI applies. LMI (lenders mortgage insurance) is a one-off cost that may apply when you borrow more than 80% of the property value, and it protects the lender, not you.

Refinancing costs can include discharge, application, valuation, switching and fixed-rate break fees. If you have less than 20% equity, LMI may apply, and you can ask whether part of the LMI on your current loan can be refunded. Moneysmart has a no-cost mortgage switching calculator that shows how long it could take to recover these costs.

Restarting a 30-year term can increase your total interest. Consider keeping a similar remaining term, or keep your repayments the same after you switch.

Lenders vary in how they count shift penalties, overtime and on-call allowances. They also differ on how much income history they ask for and how they treat salary packaged amounts.

Can paramedics avoid paying LMI?

Some lenders waive LMI for paramedics, which means LMI would normally apply but isn't charged because of your job. Others offer lender-paid LMI, where the loan is still insured but the lender pays the premium, which is reflected in the pricing. Lender policies, limits and conditions change often, so ask a broker which lenders currently offer these options and whether you would qualify.

If you're refinancing, ask a broker which options could apply to you, as some offers only apply to purchases. All lending is subject to credit approval. You can read more on LMI waivers for paramedics.

Structure your loan: splits, offsets and equity release

A split loan lets you fix part of your debt and leave the rest variable, and an offset account is usually linked to the variable part. An offset reduces the balance you pay interest on while keeping your money accessible. Money in an offset doesn't earn interest, offset loans can come with higher rates or package fees, and access to redraw depends on your loan terms.

Some borrowers may be able to increase their loan when refinancing and hold the extra in an offset as a cash buffer. An equity release like this adds to your debt, so it only suits some households.

Example at 6.75% over 30 years

Before (at 6.75%) After (at 6.75%) Loan amount $600,000 $650,000 Minimum monthly repayment about $3,892 about $4,216 The minimum repayment rises by about $324 a month. While $50,000 sits in a 100% offset, it cancels about $281 a month in interest. This saving falls as the buffer is spent, and the figures are illustrative only.

If you go this way, check these points:

• The lender assesses the higher loan amount and may ask how the funds will be used.
• Costs include refinancing fees, break costs, package fees and offset fees.
• The offset should be 100%, not partial, and correctly linked to the loan.

If the extra borrowing takes your LVR above 80%, see the LMI section above.

Interest deductibility depends on how borrowed money is used, so speak with your accountant before you borrow extra.

A buffer is a safety net, not spending money, and it won't fix repayments that are already unaffordable. Make extra repayments only if your household can afford them.

If you transfer to another station and rent out your home, the ATO's 6-year rule may let you keep treating it as your main residence for capital gains tax for up to 6 years. Overtime and penalty pay can go into the offset rather than the everyday account.

Tighten the household budget

Reviewing your regular bills is a quick way to free up cash for higher repayments. Start with subscriptions, insurance, energy and phone plans.

Credit cards and buy now, pay later can add monthly pressure. Debt consolidation may lower your repayments but stretch the debt out over a longer time.

Employees of public hospitals, not-for-profit hospitals and public ambulance services may be able to salary package. The ATO caps the fringe benefits tax exemption at a grossed-up value of $17,000 per employee, with a separate $5,000 cap for salary packaged meal entertainment. The grossed-up cap is higher than the amount actually packaged, so ask your packaging provider for your own figure.

Ask payroll whether your mortgage repayments can be packaged.

Fixed, variable or split?

Fixed rates give repayment certainty, variable rates give flexibility, and a split gives you some of each. Fixed loans can carry break costs and limits on extra repayments, while variable loans usually allow extra repayments and offset access.

A split loan, as covered above, lets you balance the two. The next RBA decision is on 8 December, and the RBA says incoming data and its assessment of the outlook and risks will guide its decisions. Nobody can say where rates will go, so choose a structure you can afford either way.

What to do if repayments are becoming difficult

Contact your lender as early as you can, preferably before you miss a payment. Lenders have hardship teams, and you have rights when you ask for help.

1. Contact your lender early, preferably before missing a payment.
2. Tell the hardship team what changed, how long it may last and what you can afford.
3. Know your rights, and ask how any arrangement affects interest and total cost.

• The lender must give a written outcome on a hardship request within 21 days.
• An arrangement won't affect your credit score, but it appears on your credit report for 12 months.
• If a request is refused, the lender must give a reason. You can use its dispute process and then contact the Australian Financial Complaints Authority (AFCA).

1. Check your income protection insurance, including cover through super, and ask utility providers about hardship options.
2. Get no-cost, confidential help: National Debt Helpline 1800 007 007; Mob Strong Debt Help 1800 808 488 (for Aboriginal and Torres Strait Islander people); Beyond Blue 1300 22 46 36 (24 hours).

Plan for injury, fatigue or extended leave, because losing income can hit harder than a rate rise. The job is demanding, and support for money stress and wellbeing is available when you need it.

Small steps taken early can give you more options later. Book an appointment at a time that suits your roster, and bring a recent loan statement, your payslips and your salary packaging statement.

This article is general information only and doesn't consider your personal circumstances. All lending, including any LMI waiver, is subject to lender criteria and credit approval. Speak with your accountant about tax.

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