*&*# you, Barefoot!

So … it seems that many readers are worried about the state of my mental health.
 
Like Raffy, who wrote:
 
“Last week’s column on interest rate hikes was a bit more adversarial than normal. Given you’re out helping the community, I just wanted to ask how YOU’RE doing?”
 
Thank you, Raffy – I’m doing okay, though I certainly copped it in the inbox this week.
 
Here’s a cracker from Linda:
 
*&*# YOU Barefoot
 
Dear Scott,

As you enjoy your perch high up without mortgage stress, you won’t join in our ‘pity party’. Yet my heart breaks telling my kids they can no longer do swimming lessons, no longer go to birthday parties, and no longer afford new shoes (cue the Supa Glue advert), among countless other sacrifices. Meanwhile my husband and I have added second jobs in our evenings and weekends to deal with the devastation caused by the rate rises and cost of living. For the first time in my life, I’ve started lining up at food banks each Tuesday so our children can have fruit and bread.
 
We can no longer do the Buckets. Our Fire Extinguisher account is extinguished. Our Mojo has no mojo. And so, despite our best efforts, here we are. *&*# you.

Linda
 
Hi Linda,
 
I understand where you’re at right now … and just how stressful, and scary it is ….
 
… though it’s not that stressful or scary for your bank.
 
They would have modelled the scenario we find ourselves in – where 800,000 borrowers will see their home loan rate go from 2% to 6% – but they decided to err on the side of their … bonuses.
 
Let me explain:
 
At the height of the pandemic the RBA flooded the banks with billions of dollars at the super-low rate of 0.1% to support the economy.
 
The banks shovelled out this money as quickly as they could … and for that round of limbo lending they made it super simple for borrowers to shimmy across the line: they assessed them on the rosy scenario that rates wouldn’t go higher than 3%.
 
Wrong!
 
So are the banks fretting about their stuff-up?
 
Nah.
 
Do you know the old saying, “The bank wouldn’t lend me money if they didn’t think I could pay it back”?
 
Well, it’s true.
 
The banks know that the vast majority of their customers are like you, Linda – they will sell off their kidneys to keep their house.
 
Yet it gets worse.
 
If you recently borrowed more than 80% of the value of your home – which I have always advised against! – you’ll find that you are effectively trapped. And your bank knows it.
 
Why?
 
Because the bank made you buy a very expensive insurance policy in case you defaulted – called Lenders Mortgage Insurance (LMI) – which can cost (you) upwards of $15,000 and is not refundable if you move to another lender.  
 
Realistically, if you don’t own at least 20% of your home, you’re about as popular as Malcolm Turnbull at a Liberal Party fundraiser: it’s highly unlikely another bank will offer you a better rate than your current bank. And that means once your fixed term ends they don’t have to do you any favours. After all, where else can you go?
 
Nice, eh?
 
Linda, I’ve spent years in the financial trenches with people who have their backs to the wall.
 
And I can tell that you’re going to make it.
 
Reason being, you’re doing whatever it takes to keep food on the table and a roof over your head. And it takes a lot of stress, and shame, and sacrifice, and bloody hard work to get that banker off your back.
 
So you’re right, I don’t pity you. I admire you and the grit you’re showing.
 
You got this.
 
Tread Your Own Path!