Steady public sector pay is a strong base, but it can leave a home loan unreviewed for years. 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 is 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 (an account linked to your loan).
- Contact your lender early if repayments are becoming hard.
What the rate rises mean for your repayments
When the cash rate rises, variable loan repayments usually rise too. As an illustration, on a $600,000, 30-year principal and interest loan, a rise from 5.50% to 6.75% adds about $485 a month.
Example: $600,000 loan, rate rises from 5.50% to 6.75%
Loan amount Term Rate change Extra repayment $600,000 30 years, principal and interest 5.50% to 6.75% About $485 a month Variable loans change now, while fixed loans change when the fixed term ends. Your lender sets the date a change takes effect, so check your notice. The RBA's October Financial Stability Review found most mortgaged households remain well placed, though it noted pockets of stress.
If you are paid fortnightly, consider matching your repayments to your pay cycle so the money leaves your account just after it arrives.
Know your numbers before you call your lender
Before you call, gather eight details: your current rate, loan balance and remaining term. Add your estimated property value and your LVR (loan-to-value ratio, which is your loan as a percentage of the property's value). Then note any fixed-rate expiry date, plus the new repayment amount and its start date.
Public servants should also have a few work details ready. Know your substantive salary separately from any higher duties allowance, and whether you are ongoing or non-ongoing. If you are on a contract, have the end date handy, along with any salary packaging.
Ask for a rate review, or consider refinancing
The quickest 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 negotiating. Long-standing customers may not have had a review for some time, so this is a short call with a possible payoff. Our page on getting a lower interest rate covers this further.
If your lender won't move, refinancing is the next option. A broker can compare options across a panel of lenders. Costs can include discharge, application, valuation, switching and fixed-rate break fees, plus possible stamp duty. The Moneysmart mortgage switching calculator is available at no cost and shows how long it could take to recover those costs.
APRA says banks and other APRA-regulated lenders generally assess your repayments at a rate at least 3 percentage points above the loan rate. Non-bank lenders set their own assessment rules.
Falling property values can reduce your equity, which affects your LVR, 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. If you have less than 20% equity, you can ask whether part of the LMI on your current loan can be refunded.
Restarting a 30-year term can increase the total interest you pay. Consider keeping a similar remaining term, or keeping your repayments the same.
Lenders may treat higher duties allowances and non-ongoing contracts differently, so confirm how a specific lender treats this income before you apply.
Can public servants avoid paying LMI?
A small number of lenders waive LMI for some public servants, which means LMI would normally apply but isn't charged because of your job. Here is the option available at the time of writing, and a lender missing from this list may still have an option, as not every lender has been reviewed.
Lenders that waive LMI for public servants
- Bankwest: waives LMI for PAYG employees at APS6, EL1, EL2 or SES level employed directly by a listed federal department, such as Attorney-General's, Defence (civilian staff), Education, Finance, Foreign Affairs and Trade, and Health, Disability and Ageing. The waiver is up to 89.99% LVR and subject to Bankwest's loan limits.
Who misses out
Bankwest's waiver doesn't cover state government departments and agencies or staff engaged through an agency.
How to compare them
- Check your classification level and whether your department is on Bankwest's list before you rely on it.
- Outside this option, we haven't found a lender that waives LMI for public service employment alone.
- A waiver saves the LMI cost, but compare the rate, fees and features too. If an equity release takes your LVR above 80%, check these options before you apply.
Lender criteria change often, and a broker can check which options you qualify for through our LMI waivers page. All lending is subject to credit approval.
Want to know where your loan stands?
Have your loan reviewed by a broker who understands public service pay.
Structure your loan: splits, offsets and equity release
A split loan puts part of your debt on a fixed rate and part on a variable rate, and an offset account is usually linked to the variable portion. An offset reduces the balance you are charged 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. This is an equity release, and it comes with a cost: a bigger loan means higher repayments.
Example at 6.75% over 30 years (illustrative)
Before (at 6.75%) After (at 6.75%) Loan amount $600,000 $650,000 Minimum monthly repayment About $3,892 About $4,216 Difference About $324 more While $50,000 sits in a 100% offset, it cancels about $281 a month in interest. That saving falls as the buffer is spent.
Before you go ahead, check these points:
- The lender assesses the higher loan amount and may ask how the funds will be used.
- Costs can 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%, revisit the LMI section above. Interest deductibility depends on how borrowed money is used, and the ATO gives an example where interest wasn't deductible on borrowed funds left in savings for private use. Speak with your accountant before you borrow for this purpose.
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. Pay increases under enterprise agreements can go to the offset or extra repayments before they are absorbed into spending.
If you relocate for a role or secondment 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.
Tighten the household budget
Reviewing your regular bills can help free up monthly cash. Look at subscriptions, insurance, energy and phone plans.
Credit cards and buy now, pay later can add monthly pressure. Debt consolidation may lower your repayments but can stretch the debt out over a longer time.
The ATO says the larger FBT-exempt salary packaging caps apply only to certain employers, such as public hospitals and public benevolent institutions. Options vary by employer, so check with payroll what is available to you.
Fixed, variable or split?
A fixed rate gives repayment certainty, while a variable rate gives flexibility. Fixed loans can carry break costs if you leave early, and may limit extra repayments or offset access. Variable loans move with rate changes, and an offset is usually linked to the variable portion. A split loan, covered above, lets you hold both. If a fixed term is ending, our fixed rate expiry page explains your options.
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 that you can afford under different outcomes.
What to do if repayments are becoming difficult
If repayments are getting hard, contact your lender early, preferably before you miss a payment. These steps can help:
- Contact your lender's hardship team before you fall behind.
- Tell them what changed, how long it may last and what you can afford.
- Know your rights. A 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, and you can use its dispute process and then contact the Australian Financial Complaints Authority (AFCA). Ask how any arrangement affects interest and total cost.
- Check any income protection insurance, including cover through super, and ask utility providers about hardship options.
- Get confidential, no-cost support: 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 ahead if a non-ongoing contract is ending, a higher duties allowance may stop or your area faces a restructure.
Small steps taken early can give you more options later. Book an appointment with one of our team at a time that suits your roster, and bring a recent loan statement, payslips and any current contract.
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.
Frequently Asked Questions
Do lenders count higher duties allowances?
Lenders may treat them differently. Confirm how a specific lender treats this income before you apply, and ask your broker if you are unsure.
Can non-ongoing staff refinance?
It is possible, but lenders vary in how they treat contract income. Have your contract end date ready.
How often should I review my home loan?
Review it at least once a year. Check again whenever rates change, a fixed term ends or your income changes.
