Why a mum with a fixed rate loan is down to one meal a day and can’t afford Easter eggs

Australia’s mortgage crisis is now so bad that a mother of two eats just one meal a day and can’t afford Easter eggs for her children.

Mandy Chen, 45, is one of 880,000 Australian borrowers whose ultra-low fixed rate loans mature in 2023.

Those who have set their rate at less than 2 percent in 2021 will face a monthly repayment of more than 7 percent when they switch to a “payback” variable rate.

The Reserve Bank’s 10 consecutive monthly rate hikes since May 2022 have pushed the cash rate to an 11-year high of 3.6 percent.

For fixed-rate borrowers like Ms.

Chen, life is already very difficult.

She now eats one meal a day – only noodles at lunchtime, so that there is enough to eat for her children.

“I only have one meal a day,” Ms Chen told Daily Mail Australia.

“I’m not having breakfast, I’m not eating.

“

The mother Darwin has postponed a visit to her elderly parents in Taiwan because she can hardly save due to the rising mortgage payments.

With Easter just a week away, she’s also worried that she can’t even afford Easter eggs for her son, 8, and five-year-old daughter.

“I kind of freak out, but you just have to keep hope — especially with young kids, you can’t let your depression show up in front of them,” she said.

Easter is coming: no chocolate for children.

“How hard is that?”

Ms. Chen and her husband took out a $210,000 loan in 2016 to purchase a Darwin unit with a 25-year term.

With the remaining $201,000 of their loan, they have $121,000 tied up for two years in 2021, with the remaining $80,000 at a floating rate.

The fixed rate of 1.74 percent expires in April, which means they have to switch to a variable rate of 8.05 percent.

Their total monthly loan repayments are now $1,000, based on the Commonwealth Bank calculator.

But if Ms. Chen were forced to an 8.05 percent fallback rate, that fixed portion of her loan would increase by $440 next month.

Her total monthly repayments would add up to $1,451 — a 40 percent increase.

Stephen Morfea, who works in the finance industry, saw his mortgage rates rise to 7.89 percent in June, when his ultra-low ANZ two-year fixed rate of 1.89 percent was due to expire.

He borrowed $670,000 over 25 years to build a four-bedroom house with a two-car garage and swimming pool in northern Brisbane. With a flat rate, he paid $2,800 per month. His repayments would rise to $5,000 a month — a peak of 79 percent — if he didn’t refinance.

Mr. Morfea dropped to a variable rate of 5.

29 percent, bringing his repayments to just over $3,900 a month. That limited the increase to a more manageable but hefty 39 percent.

Mr Morfea said he was considered a loyal customer but feared the situation would be much worse for those unable to refinance because they had smaller mortgages and were saddled with ‘ridiculously high roll-off rates’ .

“For people who are not considered loyal and are in a mortgage, these poor bastards are stuck paying 7.89 per cent – ​​it surprises me,” he told Daily Mail Australia.

“It’s just a robbery, mate. The banks go out of their way. We’re going through a bit of a rough time.’

“I’ve been in the financial game for almost 24 years, so I’m lucky to be able to refinance in June, but you get from some of these poor people that maybe their financial position has changed, they can’t refinance.”

Even with a better refinance deal, Mr. Morfea will have to give up treats like going out once a week with friends for fish and chips as his annual repayments increase by $13,200 a year.

“There will definitely have to be a tightening of the budget,” he said.

“I’m definitely going to feel it.”

Mr Morfea, who is also paying off a car loan, said there would be fewer social outings.

“I have a little bit more income that will soften the blow a little bit, but having said that, I still need to tighten my belt,” he said.

“There are other loans that eat up my disposable income – lunch with friends, that needs to be cut back.”

Figures from the Reserve Bank of Australia show that 880,000 ultra-low fixed rates will expire in 2023.

Financial comparison website InfoChoice has broken through that.

In the second half of 2023, an average of 86,553 fixed loans per month will mature, forcing borrowers to pay much higher variable interest rates unless they refinance.

That’s the equivalent of the capacity of Accor Stadium in western Sydney each month.

InfoChoice market commentator Harrison Astbury said doubling monthly repayments would in some cases be disastrous for the economy.

“Our research shows that a group of people larger than an NRL Grand Final audience is suddenly being cut to the bone every month, and that will really suck the life out of the economy,” he said.

Reserve Bank Assistant Governor Christopher Kent acknowledged this month that the slowing effect of fixed rate expiration had not yet been felt, as one-third, or 35 percent, of home borrowers were on fixed rates by early 2022.

This means that it will probably take longer than usual for the full effect of higher interest rates on household cash flows and household spending to materialise.

“While fixed-rate loans have since been phased out and borrowers have generally moved to floating-rate loans, this adjustment has yet to have any effect,” said Dr Kent.

“So the unusually high share of fixed-rate loans when the Bank started to tighten monetary policy has additionally slowed the pass-through to outstanding mortgage rates.”

Mr Astbury said it is historically unprecedented for a large number of fixed rate mortgages to mature at the same time.

“The mortgage market turned upside down in mid-2021 when more than half of all new mortgages were secured,” he said.

“Even the Reserve Bank is flying blind because this phenomenon is causing a huge delay in the effect of interest rate hikes.”