The pitfalls of interest-only mortgages and how to avoid home loan stress
With the official interest rate threatening to eventually rise and some experts tipping a “market correction” in house prices, this is a good time to talk about mortgage stress. What are the signs and how do you avoid it?
ABC News has reported that more than one-third of Australian home loans are the ‘interest only’ variety, which means that the loan repayments are covering only interest charges and fees, and doing nothing to reduce the principal loan amount. Added to that, other research shows that eight percent of mortgage holders have little equity in their homes, making them vulnerable should house prices fall or they’re forced to sell. There’s also data to suggest that around one-in-ten interest-only borrowers are not even aware that their loan repayments do nothing to increase their equity in their home.
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Don’t let your mortgage put you at financial risk. Here are my tips for avoiding home loan stress:
- Not sure if your mortgage is interest-only or principal-and-interest? Check your statements to see if your loan balance is decreasing.
- If you have an interest-only mortgage, spend some time reassessing. Has your situation changed? Can you afford principal-and-interest repayments now?
- Shop around—now is a good time to compare lenders and look for a better deal. Many lenders will match rates to attract or keep your business.
- Don’t over-commit yourself—budget for anticipated interest rate rises.
- Get ahead by paying more than the minimum loan instalment.
- Do your research and understand that bricks and mortar investments are usually long-term propositions.
If your mortgage is giving you stress, call MyBudget on 08 8215 7683. We’ll analyse your finances and put together a free “no more money worries” budget for you. We also have a team of caring loan officers who can look at your current mortgage and make recommendations based on your budget plan.
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The benefits of personal budgeting:
- Personal budgeting is the only way to gain a thorough understanding of your financial situation.
- Personal budgeting ensures that you always live within your means, and provides a safety net for inevitable changes in life or when things go wrong.
- Personal budgeting is the key to accumulating savings and achieving your financial goals.
- Personal budgeting is one of the most effective methods for paying down debts and avoiding ongoing debt in the future.
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We also understand that the hardest part about budgeting is sticking to it. That’s why we do the legwork for you. We can manage your budget, pay your bills, save for you, and communicate with your creditors, if necessary.
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