Avoid a home loan headache

Jan 18, 2023 | Finance, Home Loan, Interest rates

Inflation and interest rates are rapidly rising in Australia and around the world. This means higher cost of living, higher home loan repayments … and higher mortgage stress for homeowners.

Research by Digital Finance Analytics (April 2022) found that 42.2% of mortgaged households are in “financial flow stress”, which is determined by examining net cashflows and identifying where households are consistently spending more than net income. 

Additionally, according to Roy Morgan (September 2022), mortgage specific risk in Australia is set to increase to nearly 1-in-4 mortgage holders by November 2022.

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 our 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!

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Authorised Credit Representative 383415 of IFBA Pty Ltd.  Australian Credit Licence Number 383415.
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