With housing prices souring, and mortgages getting larger, have you considered what may happen when interest rates inevitably increase?
As house prices spiral ever higher and interest rates test record lows, it has never been easier for anyone to borrow too much when buying a home and then suddenly find themselves struggling to meet the repayments.
And the number of Australians in this situation is growing. Research by the University of NSW suggests the proportion of households in financial stress has surged to 42% this year, up sharply on the start of 2020, when less than a third of households were in financial stress.
In addition, calculations by the fintech company, Digital Finance Analytics, suggest just a 0.5 per rise in home loan interest rates could push another 220,000 Australian households into financial difficulties.
While these figures are daunting, there are some simple effective steps you can take if you are fearful your financial position is not as good as it should be. As always, start with drafting a budget and finding out where all your money goes.
If you’ve tried and failed to create a meaningful budget, speak with your accountant or tax agent as there are some very simple, cheap and clever software programs that can help you finally get one in place. Look for costs you can reduce, or better still, do without entirely.
Getting by with just one car in the family rather than two, for example, is estimated to save most families between $2,000 to $5,000 a year in related costs – savings that could be re-directed to help pay off your mortgage.
Then review your actual mortgage. Speak with a mortgage broker to determine whether there are better and cheaper home loans on the market that you can take advantage of. Remember every dollar of interest you save, means an extra dollar reducing the total size of your mortgage if you leave your payments unchanged.
If interest rates do increase and you can no longer meet your monthly repayments, be pro-active and speak to your bank or home loan provider as soon as you become aware that there is a problem and ask for their help to find a way forward.
There may be some simple steps you can take such as consolidating any expensive credit card debts or personal loans into your low-cost home loan to reduce your overall repayments or consider selling that boat or caravan you no longer use and use those funds to reduce your debts.
If once you’ve reviewed the family budget closely, you realise you have simply borrowed more than you feel you can repay, don’t wait in the hope that things will somehow get better. The sooner you take steps to resolve the situation, the better.
It maybe that you will need to sell the property that is ultimately causing your financial difficulties and while this can be disappointing, it is important to remember that it is not the end of the world. That it is possible to sell and move to a smaller home or a cheaper suburb.
The most important thing to keep in mind is to not wait until you’ve fallen behind on your mortgage repayments. You will always be better off financially if you take control of the situation rather than wait until the bank steps in and sorts the situation for you.
You need to consider with your financial planner (or adviser), your objectives, financial situation and your particular needs prior to making an investment decision. Futuro Financial Services Pty Ltd and its authorised representatives (or credit representatives) do not accept liability for any errors or omissions of information supplied on this website
Steve May, Luke Styles and May Wealth Pty Ltd T/A Steve May Financial Services are Authorised Representatives / Corporate Authorised Representative of Futuro Financial Services Pty Ltd ABN 30 085 870 015, Australian Financial Services Licensee, Licence number 238478. Please refer to our website at www.stevemayfs.com.au to reference our Financial Services Guide and business/adviser profiles.
May Wealth Pty Ltd ABN 71 612 234 518 trading as Steve May Financial Services is a Corporate Authorised representative of Futuro Financial Services Pty Ltd ABN 30 085 870 015, Australian Financial Services Licensee, Licence number 238478.
Steve May and Luke Styles are Authorised Representative’s of Futuro Financial Services Pty Ltd ABN 30 085 870 015, Australian Financial Services Licensee, Licence number 238478