Rates at 18-Year High: Top Tips for FIFO Home Loans

The Reserve Bank of Australia (RBA) raised the cash rate by 0.25 percentage points to 4.85% on 3 November. It was the fifth rise this year, 1.25 percentage points in total, and the highest level in 18 years.

FIFO income is often higher but less predictable, so a loan set up during a strong run of work also needs to hold up between contracts or when rosters change. You can't control the cash rate, but you can review your loan, your budget and your options.

What do the rate rises mean for your repayments?

When the cash rate rises, repayments on variable loans usually go up, and fixed loans feel the change when the fixed term ends. Your lender decides when a change takes effect, so watch for its emails and statements.

Here is an illustrative example. On a $600,000, 30-year principal and interest loan, a rise from 5.50% to 6.75% adds about $485 a month. Picture a household on that loan that has just been told the new repayment. It needs to find that extra $485 every month, so it works out where the money will come from before the first higher payment lands. That is a far easier conversation to have early than after a missed payment.

If your loan is fixed, check when the term ends. Our page on fixed rate expiry explains what happens next.

Two FIFO-specific habits help here. First, line your repayment date or frequency up with your pay cycle, so repayments don't fall between pay runs. Second, check lender emails and statements while you are on site, because a notice that sits unread for a whole swing is easy to miss.

Know your numbers before you call your lender

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

Your income needs the same attention. Separate your base pay from overtime, site allowances and bonuses, because lenders and budgets treat them differently. Note your employment type, whether that is permanent, fixed-term contract, labour hire or ABN contractor, and any contract or project end date. If you want a second set of eyes on all of this, our Loan Health Check can help you review your loan.

Ask your lender for a rate review

The quickest first step is to compare your current rate with what your lender offers new customers, then ask for a lower rate. Moneysmart says having at least 20% equity and a good credit score can help when you negotiate.

The trade-off is that your lender may say no, or offer only a small cut. A broker can compare options across a panel of lenders, which gives you something to hold up against your current rate. Our guide to getting a lower interest rate covers how that conversation can go.

Refinancing a FIFO home loan: check the full picture

Refinancing means moving your loan to a new lender or a new loan, and it only pays off if the total cost over time comes out in your favour. Compare rates, fees, features and the total cost, not just the headline rate. Our refinancing page has more detail.

Moneysmart lists the costs that can apply: discharge, application, valuation and switching fees, fixed-rate break fees, and possibly stamp duty. It also has a mortgage switching calculator that is worth a go before you commit.

Falling property values can reduce your equity and change your LVR, which can affect pricing and whether lenders' mortgage insurance (LMI) applies. LMI is insurance that protects the lender, not you, and the cost can be added to the loan. It may be triggered with less than 20% equity. Moneysmart notes you can ask whether part of the LMI on your current loan can be refunded.

Be careful about restarting a 30-year term. It can lower your repayment, but it can also increase the total interest you pay. Keeping a similar remaining term, or keeping your repayments the same, avoids that.

According to APRA, 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. So a loan you can afford today still has to pass a tougher test to be approved.

FIFO income adds some extra checks:

• Lenders vary in how much overtime, allowances and bonuses they count, and how much income history they ask for.
• Contractors may need tax returns rather than payslips, and a recent change of employer or roster can affect the assessment.
• Lender policies can differ for properties in some regional and mining towns, which can affect LVR limits and pricing.

Is there an LMI waiver for FIFO workers?

We are not aware of any lender that offers an LMI waiver or no-LMI product specifically for FIFO workers. Some options have no occupation test and are open to all borrowers, including FIFO workers.

There are three terms to know. A profession LMI waiver means LMI would normally apply but is waived because of your occupation. With lender-paid LMI, the loan is insured and the lender pays the premium, which is reflected in pricing. A no-LMI product means LMI doesn't apply, regardless of occupation.

These are examples available at the time of writing. Lender criteria change often, and a broker can check your eligibility and how each lender treats contractor income. You can read more on our LMI waivers page.

• Bluestone: no LMI to 90% LVR on some products, for an owner-occupied purchase or refinance, with maximum loan sizes that reduce at higher LVRs. A risk fee applies on some products, and a broker can confirm the limits. Interest only is available for up to five years.
• Connective Elevate: no LMI 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.

Bluestone covers refinancing. Risk fees, lender-paid LMI and non-bank pricing can cost more over time than paying LMI, so compare the total cost before you decide.

Structure your loan, including releasing equity

Splitting your loan into parts lets you match each part to a purpose. A split loan is part fixed and part variable, and an offset account is usually linked to the variable portion. Separate splits for different purposes, such as your home and a cash buffer, keep things clear.

An offset account is a transaction account linked to your loan. It reduces the balance you are charged interest on, while your money stays accessible.

Some borrowers may be able to increase their loan when refinancing and hold the extra in an offset as a cash buffer. This is called releasing equity, and our equity release loans page has more detail. Here is an illustrative example at 6.75% over 30 years. A borrower lifts a loan from $600,000 to $650,000 and puts the extra $50,000 into a 100% offset. The minimum repayment rises from about $3,892 to about $4,216 a month, about $324 more. While the $50,000 sits in the offset, it cancels about $281 a month in interest. That saving falls as the buffer is spent, and the higher repayment stays.

A few things to check before going down this path:

• The lender assesses the higher loan amount and may ask how the funds will be used.
• Less than 20% equity may trigger LMI, and there is no FIFO-specific LMI waiver, so an equity release above 80% LVR may trigger LMI unless one of the options above suits.
• Costs can include refinancing fees, any stamp duty, break costs, package fees and offset fees.
• The offset should be 100%, not partial, and correctly linked to the loan.
• Compare the new term and total interest.

Tax matters too. According to the Australian Taxation Office (ATO), interest deductibility depends on how borrowed money is used, and its example shows interest wasn't deductible on borrowed funds left in savings for private use. Talk to your accountant before you borrow.

A buffer is a safety net, not spending money. It also won't fix repayments that are already unaffordable. For FIFO workers it can help between contracts, during site shutdowns or when rosters change, and it is usually easier to arrange while your income is steady and documented.

Make your offset, redraw and extra repayments work harder

Building a buffer before the higher repayment starts can help, if your household can afford it. Moneysmart says an offset reduces the balance charged interest while keeping your money accessible. Money in an offset doesn't earn interest, and loans with an offset can come with higher rates or package fees. Access to redraw, which lets you withdraw extra repayments you have made, depends on your loan terms.

If you are FIFO, parking swing pay and overtime in an offset reduces interest while keeping the money available for quieter periods. Make extra repayments only if your household can afford them. Money you can't get back out is no help when a roster changes.

Tighten the household budget

Start with the bills you can change without changing your lifestyle: subscriptions, insurance, energy and phone plans. Moneysmart has budgeting tools, and it also has guidance on managing money when income varies.

Credit cards and buy now, pay later can add monthly pressure. Debt consolidation may lower your repayments, but it can increase the total interest you pay, so weigh both sides.

For FIFO households, build the core budget on base pay and treat overtime and allowances as extra. Don't budget around a tax refund either. According to Treasury, since 1 July 2015 FIFO and DIDO workers whose normal residence isn't in a zone can't claim the zone tax offset. The Federal Court has also dealt with FIFO cases where travel between home and a regular workplace was treated as non-deductible. Your accountant can answer questions about your own situation.

Fixed, variable or split?

Fixed gives you repayment certainty, variable gives you flexibility, and a split gives you some of each. The trade-offs are break costs if you leave a fixed loan early, limits on extra repayments, and whether you can use an offset.

For uneven income, a variable or split loan with an offset can suit, while a fixed portion gives certainty on part of the loan. The RBA's next decision is on 8 December, and it says incoming data and its assessment of the outlook and risks will guide its decisions. Nobody can tell you where rates will go, so choose a structure you can live with either way.

What if repayments are becoming difficult?

Contact your lender early, preferably before you miss a payment. Tell the hardship team what changed, how long it may last and what you can afford.

Moneysmart says a lender must give a written outcome on a hardship request within 21 days. A hardship 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 your interest and total cost, and agree only to repayments you can afford.

Also check whether you have income protection insurance, including cover through your super, and ask utility providers about their hardship options. If your circumstances are unlikely to improve, selling may need to be considered, after speaking with a financial counsellor or getting legal advice.

Support lines at no cost, listed by Moneysmart, include the National Debt Helpline on 1800 007 007 and Mob Strong Debt Help on 1800 808 488 for Aboriginal and Torres Strait Islander people. Long stretches away can add strain, and Beyond Blue is available 24 hours on 1300 22 46 36.

Plan for a contract ending, a site closing or an injury. Losing income can hit harder than a rate rise.

Small steps taken early can give you more options later. Call one of our team or book an appointment at a time that works for you, including outside your swing dates. Bring a recent loan statement, your payslips and your roster details, and we will work through your FIFO home loan with you.

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