Here are some tips to help you manage mortgage stress as interest rates are going up, the economy looks uncertain and property prices drop putting more financial pressure on Aussie families.
What is mortgage stress?
Usually, mortgage payments should constitute no more than 30% of your pre-tax income, as paying more than that can lead to mortgage stress. Australian Federal Treasurer Jim Chalmers predicted that inflation was forecast to peak at 7.75% by December this year. What’s more, the RBA raised its cash-rate again to a high of 2.60%, that has placed many Aussie families under mortgage stress. With wage growth stuck at between 2-3%, lagging far behind inflation, mortgage stress is potentially here to stay for some time until national wages increase. Below are some tips that can help manage your mortgage and the stress that comes with it.
Use an offset account
If you have a variable home loan, linking it to an offset account can prove to be useful in the rising interest rate environment. Instead of putting your money into a high interest account where your earnings may attract tax and not the rate, leaving it in an offset account can help reduce your total mortgage amount and the interest you pay on that loan.
Refinance your loan
Make sure you’ve got the best deal with the lowest rate possible if this is suitable. You may be paying a higher rate than you need to on your home loan without realising it. Whether you’ve built up home equity or been with your lender for years, it gives you bargaining power to negotiate a lower rate with your current or new lender. So, shop around and you might even get a cashback offer along with a lower rate. If you need the services of a Mortgage Broker, our office can assist you with that.
Pay principal and interest
If you’re paying a variable rate and are concerned about ongoing rate hikes you might want to consider switching to a fixed rate for a set number of years. The predictable repayments could make it easier to budget. If you are paying interest only, you are not paying down your debt- so while your repayments may be higher, you will be shaving years off your loan.
Change your payment cycle to fortnightly from monthly
Making repayments every 2 weeks instead of once a month can help save you money by paying off your loan faster. There are 12 months in a year but 26 fortnights. So, you’ll end up making 2 extra repayments a year without possibly even realising it. Paying additional money weekly will further reduce your loan.
If you would like to review your home loan options, discuss your finances in more detail or just want to a general review of your financial situation, please don’t hesitate to contact us on 02 9188 1547 or email firstname.lastname@example.org
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