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

Tradie income can swing with work volume, seasons and weather, and many tradies are self-employed, so the full picture of your income matters when you review your 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

• Check your new repayment amount and when it starts.
• Ask your lender for a lower rate before you do anything else.
• Compare the total cost of refinancing, not just the new rate.
• Consider a cash buffer to get you through quiet months.
• Contact your lender early if repayments are getting hard.

What the rate rises mean for your repayments

A higher cash rate means higher repayments on variable loans, and on fixed loans once the fixed term ends. The RBA's latest rise was the fifth this year, 1.25 percentage points in total, and took the cash rate to its highest level since late 2008.

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

This is an illustration only. Variable loans change now, fixed loans change when the term ends, and your lender sets the date a new repayment takes effect. The RBA's Financial Stability Review found most mortgaged households remain well placed, though it noted pockets of stress.

If you're paid in lumps, match your repayments to when the money lands. Fortnightly or monthly repayments timed around invoices stop a quiet month leaving you short.

Know your numbers before you call your lender

Before you call, have seven numbers in front of you: your current rate, loan balance, remaining term, estimated property value, LVR, any fixed-rate expiry date, and the new repayment amount and start date. LVR is the loan-to-value ratio, which is your loan as a percentage of your property's value. If your fixed term is ending, our fixed rate expiry page covers what to line up.

Split your income into steady money and variable jobs. Note whether you're an employee, contractor or sole trader, because lenders treat each differently.

Keep recent tax returns, BAS statements and business financials handy. Lenders assess self-employed income on them, and our self-employed loans for tradies page explains more.

Ask for a rate review, or consider refinancing

The quickest 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 guide to getting a lower interest rate has more on how to ask.

If your lender won't move, refinancing is the next option. A broker can compare options across a panel of lenders, which is what we do at Tradie Home Loans. Our home loan refinancing for tradies page covers the process.

Refinancing has costs. They can include discharge, application, valuation, switching and fixed-rate break fees, plus possible stamp duty. The Moneysmart mortgage switching calculator is a no-cost tool 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, which affects your LVR, pricing and LMI. LMI is lenders mortgage insurance, 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, ask whether part of the LMI on your current loan can be refunded.

Restarting a 30-year term can increase your total interest. Keep a similar remaining term, or keep your repayments at the same level, to avoid that.

Lenders vary in how they assess contract and self-employed income. A broker can check which lenders suit your income.

Is there an LMI waiver for tradies?

There's no LMI waiver specifically for tradies among the lender policies reviewed. Some lenders do offer options where LMI doesn't apply, though eligibility rules differ. Here are examples 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.

No-LMI options (LMI doesn't apply):

• ubank: no LMI up to 90% LVR for owner-occupied and investment purchases, on principal and interest repayments. Sole traders and other self-employed borrowers may face stricter LVR and trading history limits, so check before you apply.
• Bluestone: no LMI up to 90% LVR for loans up to $3m, covering owner-occupied purchases and refinancing. Interest-only repayments are available for up to five years, and alternative documentation is accepted.
• Connective Elevate: no LMI up to 90% LVR for owner-occupied and investment loans, up to $3m in metropolitan areas and $2m outside them. A risk fee applies on some products and LVRs.

How to compare them

• If you're self-employed or a contractor, check what each lender needs to see: Bluestone accepts alternative documentation, while ubank may apply stricter limits to sole traders and self-employed borrowers.
• Compare the total cost, as risk fees and different pricing can sometimes cost more over time than paying LMI.
• If you're refinancing, Bluestone covers it, while ubank's option is for purchases. 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 Loan Health Check. All lending is subject to credit approval. For more, see our LMI waivers for tradies page.

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 part. An offset reduces the balance you're 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. Our equity release loans for tradies page covers how that works.

Example at 6.75% over 30 years

While $50,000 sits in a 100% offset, it cancels about $281 a month in interest. That saving falls as you spend the buffer. This is an illustration only.

Before you go ahead, check four things:

• 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%, go back to the LMI section above.

Interest deductibility depends on how the borrowed money is used, so speak with your accountant before you set this up.

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 a tradie, a buffer can help through quiet periods, wet weather or time off the tools. Keep money set aside for tax and GST in a separate account, so it isn't mistaken for spare cash.

Tighten the household budget

Start with the bills you can cut quickly: subscriptions, insurance, energy and phone plans. Credit cards and buy now, pay later can add monthly pressure, so check what they're costing you.

Debt consolidation may lower your repayments, but it can stretch the debt out over a longer time. Build your core budget on your income in a slow month and treat busy periods as a bonus.

Fixed, variable or split?

Fixed rates give you repayment certainty, and variable rates give you flexibility. Fixed loans can mean break costs if you leave early and limits on extra repayments. Variable loans usually give you offset access and more room for extra repayments, and a split loan, as covered above, gives you some of each.

The next RBA decision is on 8 December. The RBA says incoming data and its assessment of the outlook and risks will guide its decisions, so pick the structure that suits your budget rather than a guess about rates.

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 are the order to work through:

1. Call your lender's hardship team and tell them what changed, how long it may last and what you can afford.
2. Ask how a hardship arrangement may affect your credit report, and ask for the lender's decision in writing.
3. If a request is refused, ask the lender for a reason. You can use the lender's dispute process and then contact the Australian Financial Complaints Authority (AFCA).
4. Ask how any arrangement affects your interest and total cost.
5. Check your income protection insurance, including cover through super, and ask utility providers about hardship options.
6. Get confidential help at no cost: 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).

Plan for injury or time off the tools. Losing income can hit harder than a rate rise.

Frequently asked questions

Do lenders count variable and contract income?

Lenders vary in how they treat it. Tax returns, financials and a solid work history help.

Is there an LMI waiver for tradies?

We haven't found one among the lenders reviewed, but some lenders offer options where LMI doesn't apply, subject to their own eligibility rules. See the LMI section above for the details.

How often should I review my home loan?

At least once a year. Also review it whenever rates change, a fixed term ends or your income changes.

Small steps taken early can give you more options later. Book an appointment at a time that works around your jobs, and bring a recent loan statement, your tax returns and your BAS statements.

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