With inflationary pressures, in addition to possible interest rate increases, you could find yourself amongst a growing number of Australians struggling to meet their home repayments.
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. Calculations by the fintech company, Digital Finance Analytics, suggest just a 0.5 per rise in home loan interest rates could push a further 220,000 Australian households into financial difficulties.
While these figures are daunting, there are some simple effective steps you can take if you are concerned about your financial position. As always, start with understanding where your money comes (income) and goes (expenses), by drafting or updating your budget.
If you’ve tried and failed to create a meaningful budget, speak with your financial planner as some very simple, cheap, and clever software programs can help you get one in place.
Look for costs you can reduce, or better still, do without entirely. Downsizing to one car in the family rather than two, for example, is estimated to save between $8,178 for a light car to just over $20,000 for an all-terrain vehicle each year in related costs[1]. These savings could be re-directed to help pay off your mortgage.
When was the last time you reviewed your mortgage? You could 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 interest rates do increase and you can no longer meet your monthly repayments, it’s better to be proactive and speak to your bank or home loan provider as soon as you become aware that there may be a problem and ask for their help to find a way forward.
There may be some simple steps you can take such as consolidating expensive credit card debts or personal loans into your low-cost home loan to reduce your overall repayments.
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.
[1] https://www.datocms-assets.com/49357/1626740597-2020-vehicle-running-costs-v2.pdf (RACT Report 2020)
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