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

Pharmacist income can vary between employee, locum and owner arrangements, and weekend and after-hours loadings can change month to month, so the full picture of 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 start date.
• Ask your lender for a lower rate before you consider switching.
• Compare the total cost of refinancing, not just the new rate.
• An offset buffer can add protection if your income dips.
• Contact your lender early if repayments are getting hard.

What the rate rises mean for your repayments

Higher rates lift your minimum repayment, and on a variable loan the change usually flows through after your lender applies it. The RBA's 3 November 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%

Variable loans change now, while fixed loans change when the fixed term ends. Lenders set the date a change takes effect, so check your notice for the exact start date.

If your pay lands fortnightly or weekly, consider matching your repayment to your pay cycle so the money leaves your account soon after it arrives.

Know your numbers before you call your lender

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

Separate your base pay from loadings, weekend and after-hours pay, and any locum income. Lenders can treat each of these differently, so a clear split helps you see what a lender is likely to count.

Note whether you are an employee, a locum or a pharmacy owner, and keep your AHPRA registration current, as some LMI options depend on it. Our Loan Health Check can pull these numbers together with you.

Ask for a rate review, or consider refinancing

The first 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 a lower rate. Our guide to getting a lower interest rate covers this conversation in more detail.

If your lender won't move, refinancing is the next option. A broker can compare options across a panel of lenders, and our home loan refinancing for pharmacists page explains the process. Costs can include discharge, application, valuation, switching and fixed-rate break fees, plus possible stamp duty.

Moneysmart has a mortgage switching calculator at no cost that shows how long it could take to recover those costs. If your loan is fixed, see our fixed rate expiry page before you decide on timing.

Banks and other APRA-regulated lenders generally assess repayments at a rate at least 3 percentage points above the loan rate, according to APRA. Non-bank lenders set their own assessment rules. Lenders also treat employee and self-employed income differently, so pharmacy owners should expect to show business financials. Our self employed loans for pharmacists page has more on this.

Falling property values can reduce your equity and affect your LVR, pricing and LMI. 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. Less than 20% equity may trigger it, and you can ask whether part of the LMI on your current loan can be refunded.

Restarting a 30-year term can increase your total interest. Consider keeping a similar remaining term, or keeping your repayments the same, so the extra years don't cost you more.

Can pharmacists avoid paying LMI?

Some lenders waive LMI for pharmacists, which means LMI would normally apply but isn't charged because of your job. Others offer lender-paid LMI, where the loan is still insured but the lender pays the premium, which is reflected in the pricing. 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. You can also read more on our LMI waivers for pharmacists page.

Lenders that waive LMI for pharmacists

• Westpac, St.George, Bank of Melbourne and BankSA: up to 90% LVR for pharmacists earning at least $90,000. Lending is up to $5m, or $7.5m in total with a waiver.
• CBA: up to 89.99% LVR for pharmacists earning at least $100,000 gross from the profession per applicant, up to $5m per customer. It needs a Mortgage Advantage Package and principal and interest repayments.
• NAB: up to 95% LVR on new lending, or 90% for investment. Limits are $4.5m per property and $7.0m in total. It excludes owner-occupied interest-only loans.
• Bankwest: for pharmacists with AHPRA registration, up to 89.99% LVR for loans to $2m or 84.99% LVR for loans to $3m, with a $5m limit per borrower. It requires principal and interest repayments.
• People First Bank: up to 90% LVR for pharmacists.

Lenders that don't offer it to pharmacists

ANZ lists pharmacists as ineligible and says it can't consider exceptions.

How to compare them

• Eligibility differs, so check each lender's income, registration and employment conditions against your situation.
• CBA and Bankwest require principal and interest repayments, and NAB excludes owner-occupied interest-only loans, so you may need to switch if your loan is interest only.
• A waiver saves the LMI cost, but compare the rate, fees and features too. 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. All lending is subject to credit approval.

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 account reduces the balance you are 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 the 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 pharmacists page explains how this works.

Example at 6.75% over 30 years (illustrative)

The offset saving falls as you spend the buffer. The extra $324 a month is a certain cost, while the saving only lasts while the money stays put.

Before going ahead, check these points:

• The lender will assess 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%, refer back to the LMI section above.

Interest deductibility depends on how borrowed money is used. The ATO gives an example where interest wasn't deductible on borrowed funds left in savings for private use, so speak with your accountant before you borrow extra.

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 pharmacists, a buffer can help if shifts are cut, a locum booking falls through or trading slows in a pharmacy you own. You can also direct weekend and after-hours loadings into the offset rather than your everyday account.

Tighten the household budget

Reviewing your regular bills is a quick way to offset part of a higher repayment. Look at subscriptions, insurance, energy and phone plans.

Credit cards and buy now, pay later can add monthly pressure. Debt consolidation may lower your repayments but stretch the debt out, so the total cost can rise.

Build your core budget on base pay, and treat locum or extra shifts as a bonus.

Fixed, variable or split?

Fixed rates give repayment certainty, while variable rates give flexibility, and a split gives you some of each. Fixed loans can carry break costs if you leave early and may limit extra repayments, while variable loans more often allow extra repayments and offset access.

A split loan, as described above, lets you hold some certainty without giving up all flexibility. 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.

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. Call your lender and ask for the hardship team.
2. Tell them what changed, how long it may last and what you can afford.
3. Know your rights. The 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). Also ask how any arrangement affects your interest and total cost.
4. Check any 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 (for Aboriginal and Torres Strait Islander people): 1800 808 488
   • Beyond Blue (24 hours): 1300 22 46 36

For pharmacists, plan for reduced hours, a gap between locum bookings or a break in registration. Losing income can hit harder than a rate rise.

Frequently asked questions

Do lenders count weekend, after-hours and locum income?

Lenders vary in how they treat this income. Payslips, tax returns and a steady work history help.

I own my pharmacy. Do these LMI options apply to me?

Eligibility varies by lender, so check each lender's conditions. A broker can confirm which options suit a pharmacy owner.

How often should I review my home loan?

Review it 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 suits your shifts, and bring a recent loan statement, payslips or tax returns.

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