Rates Are at an 18-Year High: What People Going Through Divorce or Separation Can Do about their Home Loan

While a separation is still unfolding, a rate rise adds pressure to an already uncertain time. 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 consider moving.
• Compare the total cost of refinancing, not just the new rate.
• Consider a cash buffer in an offset account (a linked account that reduces the interest you pay).
• Contact your lender early if repayments are getting hard.

What the rate rises mean for your repayments

When the cash rate rises, the repayments on most home loans eventually rise too. The RBA lifted the cash rate to 4.85%, which was its fifth rise this year and 1.25 percentage points in total, taking it to the highest level in about 18 years.

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

Loan details	Result
Loan amount and term	$600,000 over 30 years, principal and interest
Rate rise	5.50% to 6.75%
Extra repayment	About $485 a month

This is an illustrative example only. Variable loans change now, while fixed loans change when the fixed term ends, and each lender sets the date a change takes effect.

This is a stressful time, and the steps below are about getting clear on the numbers. Start by checking who is currently making the repayments and how, because a rate rise changes the amount.

Know your numbers before you call your lender

Before you call, gather your current rate, loan balance, remaining term and any fixed-rate expiry date. Add your estimated property value, your LVR (loan to value ratio, which is your loan as a percentage of the property's value), and the new repayment amount and start date.

Then note whose names are on the loan and the title, who is paying, and whether there is any agreement or court order about the property. If the settlement is still pending, say so. Write down your own income too, plus any child support or maintenance you actually receive.

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 negotiating, and our guide to getting a lower interest rate covers how to approach the call.

If your lender won't move, refinancing may be worth a look. A broker can compare options across a panel of lenders, but costs can include discharge, application, valuation, switching and fixed-rate break fees, plus possible stamp duty. A mortgage switching calculator from Moneysmart shows how long it could take to recover those costs.

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. If you have less than 20% equity, you can ask whether part of the LMI on your current loan can be refunded.

Banks and other lenders regulated by APRA generally assess your repayments at a rate at least 3 percentage points above the loan rate. Non-bank lenders set their own assessment rules. Restarting a 30-year term can also increase the total interest you pay, so consider keeping a similar remaining term or keeping your repayments the same.

For a joint loan, ask your lender what it needs from each borrower before it can make changes. Refinancing after separation can be a way to move a loan into one name, but the remaining borrower is assessed on their own income at the assessment rate, so approval can't be promised.

Can you avoid paying LMI during a separation?

There's no LMI waiver based on separation or divorce among the lender policies we reviewed. Some lenders do offer options with no occupation test. These 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, whatever your job):

• ubank: no LMI up to 90% LVR for eligible borrowers and properties, on owner-occupied and investment purchases with principal and interest repayments. The maximum loan is $2m where the LVR is above 85%.
• Bluestone: no LMI up to 90% LVR on some products, covering owner-occupied purchases and refinancing. The maximum loan size falls at higher LVRs, so check the current product guide for the limit at 90% LVR. Interest-only repayments are available for up to five years.

How to compare them

• If you later pay out your partner's share, your LVR may rise above 80%, so check which options suit the loan size you need.
• If your own profession has an LMI waiver, ask a broker whether it could apply to you.
• 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.

Lender criteria change often, and a broker can check which options you qualify for. All lending is subject to credit approval. Our page on LMI waivers has more detail.

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 your lender charges interest on while keeping your money accessible. The trade-offs are that 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. Here is how that could look.

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
Difference		About $324 more

This is an illustrative example only. While $50,000 sits in a 100% offset, it cancels about $281 a month in interest, but that saving falls as the buffer is spent.

If you try this, check a few 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%, 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 relying on any tax outcome.

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.

Paying out a partner's share is a form of equity release, so the same LMI check applies if your LVR goes above 80%. Our page on buying out your partner explains how that works, and a family lawyer can advise on your property settlement because this article can't give legal advice.

Tighten the household budget

One way to free up cash is to review your regular bills. Look at subscriptions, insurance, energy and phone plans first.

Credit cards and buy now, pay later can add monthly pressure. Debt consolidation may lower your repayments but stretch the debt out, so you could pay more over time. Rebuild your budget on one income, and treat child support or maintenance as extra unless it's regular and reliable.

Fixed, variable or split?

A fixed rate gives you repayment certainty, while a variable rate gives you flexibility. Fixed loans can carry break costs and limits on extra repayments, and an offset is usually linked to the variable portion of a split loan, as covered in the split loans section above.

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. If your fixed term is ending soon, our page on fixed rate expiry explains your options.

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:

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. The lender must give you a written outcome within 21 days, and a hardship arrangement won't affect your credit score but appears on your credit report for 12 months. If your 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.
4. Check any income protection insurance, including cover through super, and ask utility providers about hardship options.
5. Get confidential support 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).

Joint borrowers are each responsible for the loan, so contact the lender early if a partner stops contributing.

Small steps taken early can give you more options later. Call one of our team or book a private appointment at a time that suits you, and bring a recent loan statement, your payslips and any documents about the property.

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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