Mortgage holders have just had the ninth consecutive interest rate rise as the Reserve Bank of Australia has announced an 0.25 per cent increase this afternoon to a cash rate of 3.35%. Inflation is just under 8% and its possible we will see more interest rate rises to come. Inflation and interest rates have been rapidly rising in Australia and around the world. This means higher cost of living, higher home loan repayments … and higher mortgage stress for homeowners.
New research from Roy Morgan (Jan 27 2023) shows an estimated 1.1 million mortgage holders (23.9%) were ‘At Risk’ of ‘mortgage stress’ in the three months to December 2022. This period encompassed three interest rate increases of 0.25% taking official interest rates to 3.1% in early December – the highest official interest rates for a decade since December 2012.
These statistics show that many Australians are feeling the financial pressure in the current economic environment, which is why it’s critical for home buyers to make sure they are properly prepared when entering the property market.
Here’s a few tips on future proofing your home purchase to ensure your ‘Great Australian Dream’ doesn’t turn into a ‘Great Australian Nightmare’ –
Know your numbers
When planning to buy a property, it’s important for buyers to have a good understanding of both their current and future cashflow.
This should include considering:
- Changes to income i.e. taking maternity leave
- Changes to expenses i.e. private school fees
- Major upcoming expenses i.e. car purchases
- Increases to cost of living
When determining affordability, buyers should also ensure they are factoring in a buffer to allow for future interest rate rises.
A financial adviser can assist with planning and putting together a home purchase and debt management strategy, including forward planning to ensure your home loan is affordable both now and into the future.
Be smart about your purchase
Buying a home can be an exciting and emotional time, but it’s best to not let your emotions get the better of you.
Once you know your numbers, it’s important to stick to them and not get enticed away by homes outside your price range.
Get the right loan product (and understand it)
Fixed vs Variable… Principal & Interest vs Interest Only… Redraw vs Offset…
There are many different loan providers, products and features available in the loan market. Ensure you are taking the time to thoroughly research and get the right home loan for your personal situation.
A mortgage broker can assist you with comparing a range of lenders and securing the best home loan structure, including ensuring you get a quality interest rate and suitable product features for your needs.
Bonus Tip– It’s important to review your home loan on a regular basis, to ensure your product remains competitive in the market.
What to do if you’re experiencing mortgage stress
If you’re an existing homeowner who is currently experiencing mortgage stress, there are a number of things you can consider:
Review your spending
If you’re having difficulties making ends meet, it might be time to review your spending.
This could include reviewing your service providers (such as phone/internet, electricity, home/car insurance etc), your memberships and subscription services, as well as your discretionary spending.
Contact your lender
Your lender will be able to discuss different options that might be available to you, when experiencing financial difficulty:
- Redraw Facility – If your loan has a redraw facility and you’re ahead on your loan repayments, you may be able to access additional repayment amounts.
- Repayment Holiday – Some loan providers will offer repayment holidays to mortgage holders that are experiencing financial hardship.
- Renegotiate Interest Rate/Refinance – If your home loan does not have a competitive interest rate or product features, you may be able to renegotiate. Alternatively, you could consider refinancing to another provider.
Seek additional support
The National Debt Helpline offers a range of information and resources, including free financial counselling and advice.
If buying a home is on your financial goal list, reach out to a professional today to make sure you’re in the right position to purchase and your home buying experience is a great one!
Disclaimer :
The information contained in this article is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication