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

Penalty rates, overtime and salary packaging all shape a nurse's income, so the full picture matters when you review a loan. The RBA raised the cash rate by 0.25 percentage points to 4.85% on 3 November. You can't control the cash rate, but you can review your loan, your budget and your options.

Key takeaways

• Repayments have risen, so check your new amount and when it starts.
• Asking your lender for a lower rate is a sensible first step.
• Refinancing can help, but compare total costs, not just rates.
• A cash buffer in an offset can help you through changes in income.
• If repayments are hard, contact your lender early.

What do the rate rises mean for your repayments?

A higher cash rate can lift the repayments on a variable loan. The RBA's 3 November rise was its fifth this year, 1.25 percentage points in total, and it took the cash rate to its highest level in about 18 years.

Here is an illustrative example of how a rate change flows through to a loan.

Loan amount Old rate New rate Extra a month $600,000 (30 years, principal and interest) 5.50% 6.75% About $485 Variable loans feel rate changes now. Fixed loans feel them when the fixed term ends and the loan rolls onto a new rate, so check the dates on your loan using our guide to fixed rate expiry. Your lender decides when a change takes effect, so read your lender's emails and statements for the new repayment amount and start date.

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

Know your numbers before you call your lender

Before you call, gather the figures your lender will ask about. Having them ready makes the conversation shorter and the answers clearer.

• Your current interest 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 the property's value)
• Any fixed-rate expiry date
• Your new repayment amount and the date it starts

As a nurse, separate your base pay from penalty rates and overtime, because lenders may treat each one differently. Also note your contracted hours, your employment type (permanent, casual or agency) and how much of your pay is salary packaged. If you would like a second set of eyes on these numbers, our Loan Health Check covers them.

Ask for a rate review, or consider refinancing

The first step is to compare your rate with the rates 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, and our page on getting a lower interest rate explains the approach.

If your lender won't move, refinancing means switching to a new loan, usually with another lender. A mortgage broker for nurses can compare options across a panel of lenders, but a lower rate is only part of the picture. Costs can include discharge, application, valuation, switching and fixed-rate break fees, plus possible stamp duty.

Moneysmart has a mortgage switching calculator that shows how long it could take to recover those costs. 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. Non-bank lenders set their own assessment rules.

Falling property values can reduce your equity and push up your LVR. That can affect pricing and may trigger LMI (lenders mortgage insurance, a one-off premium that protects the lender, not you, and can apply when you have less than 20% equity).

Restarting a 30-year term can lower your repayment but increase the total interest you pay over the life of the loan. Consider keeping a similar remaining term, or keeping your repayments the same so the loan keeps shrinking at its current pace.

Lenders also vary in how they count penalty rates, overtime, and casual or agency income. They differ on how much income history they ask for and how they treat salary packaged amounts, so the same payslips can produce different results.

Can nurses avoid paying LMI?

Some lenders waive, cover or avoid LMI for nurses and midwives, but the rules differ and change often. The options below are examples available at the time of writing, and a broker can check your eligibility. Our page on LMI waivers for nurses has more detail.

A profession LMI waiver means LMI would normally apply but is waived because of your occupation.

• Westpac Group (Westpac, St.George, Bank of Melbourne and BankSA): profession LMI waiver to 90% LVR for registered nurses and midwives earning at least $90,000. Maximum lending is $5m, or $7.5m in total with a waiver.
• People First Bank: profession LMI waiver to 90% LVR for registered nurses under its essential services package, with loans to $1.2m.
• Bank First: profession LMI waiver to 90% LVR for healthcare workers. The home must be owner-occupied, loans are principal and interest, and there is no equity release on a refinanced loan.

Newer graduates may not meet the tenure or employment requirements of some options. If you are buying, our first home buyer loans for nurses page covers the next steps.

Structure your loan: splits, offsets and equity release

A split loan divides your debt into a fixed part and a variable part, and an offset account is usually linked to the variable part. An offset reduces the balance you are charged interest on while keeping your money accessible. Money in an offset doesn't earn interest, and offset loans can come with higher rates or package fees. Access to redraw (taking back extra repayments) 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. Our page on equity release loans explains how this works. This example is illustrative, at 6.75% over 30 years.

Before After Difference Loan amount $600,000 $650,000 $50,000 Minimum monthly repayment About $3,892 About $4,216 About $324 more While $50,000 sits in a 100% offset, it cancels about $281 a month in interest. That saving falls as you spend the buffer, and the higher repayment stays.

Before going ahead, check these points:

• The lender assesses the higher loan amount and may ask how you will use the funds.
• 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%, see the LMI section above. Interest deductibility depends on how borrowed money is used, so speak with your accountant before you borrow for a buffer.

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.

For nurses, a buffer can help if your hours are cut, shifts dry up for casual or agency work, or you take parental leave. Consider directing overtime and penalty pay into the offset rather than your everyday account.

Tighten the household budget

A short review of regular bills can free up cash for your repayments. Check subscriptions, insurance, energy and phone plans.

Credit cards and buy now, pay later can add monthly pressure. Debt consolidation may lower your repayments, but it can 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 FBT 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 you actually package, so ask your packaging provider for your own figure. Nurses in private, for-profit settings may not have access to these caps.

Also ask payroll whether your mortgage repayments can be packaged.

Fixed, variable or split?

A fixed rate gives repayment certainty, a variable rate gives flexibility, and a split gives you some of each. Fixed loans can carry break costs if you leave early, limits on extra repayments, and limited or no offset access. Variable loans are usually more flexible, but your repayments can move when rates do. As covered above, a split lets you fix part of the debt and keep an offset on the variable part.

The next RBA decision is on 8 December, so choose a structure that suits your budget rather than a guess about what comes next.

What to do if repayments are becoming difficult

If repayments are getting hard, contact your lender early, preferably before you miss a payment. Then work through these steps:

1. Contact your lender and ask for the hardship team.
2. Explain what changed, how long it may last and what you can afford.
3. Know your rights. A lender must give you a written outcome within 21 days. A hardship arrangement won't affect your credit score, but it appears on your credit report for 12 months. The lender must tell you in writing if it refuses, 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.
4. Check your income protection insurance, including cover through super, and ask utility providers about hardship options.
5. 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), or Beyond Blue 1300 22 46 36 (24 hours).

If your circumstances are unlikely to improve, selling may need to be considered, after speaking with a financial counsellor or getting legal advice. Plan for reduced hours, burnout or injury, because losing income can hit harder than a rate rise.

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. You can also see our home loans for nurses page.

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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