A recent online survey conducted by Loan Market found more than 40% of Australians spend around half their monthly income repaying debts. In fact, 44% of respondents said they spent more than 40% of their income repaying mortgages, credit cards or personal loans.
These survey results show how vulnerable many Australians are to interest rate fluctuations. Almost 30% of respondents to the survey said they spent more than half of their income on debt repayments, which is quite a staggering statistic.
Of almost 400 respondents, only a quarter of those surveyed spent 20% or less of their income on debt repayment.
The Reserve Bank of Australia certainly has a delicate task in responding to the economic recovery through its movements with the official cash rate.
This is why it's important for new borrowers to always factor in at least a 2% increase in interest rates when applying for home finance.
If you're a mortgage holder who is currently struggling with the interest rate hikes, it's a good idea to consult with an expert now, to prevent your finances potentially getting out of hand down the track. A good mortgage broker will able to assist with debt consolidation, refinancing or realigning your budget.
Many economists are predicting the official cash rate to hit between 4.75% and 5.25% by the end of 2010; consider this when next conducting a health check on your mortgage.
What to do if you are experiencing mortgage stress
- If you find yourself experiencing mortgage stress, or believe you will soon have trouble making your home loan repayments, you should talk to your mortgage broker straight away.
- Your mortgage broker can present your case to your lender for consideration. It's important to remember your lender will only sell your home as a last resort – financially it is better for them for you to keep your house too!
- Some options that you may have available to you to help manage your situation when you are experiencing mortgage stress include:
- Applying for a hardship variation to extend your loan term, take a repayment holiday, or both
- Consolidating debt
- Refinancing your home loan
- Switching to an interest only repayment option
- Applying for assistance – some state governments assist borrowers to meet payments that have resulted from temporary shortfalls
It's important to note that not all options will be available. In many cases it will depend not just on your situation, but also the lender your home loan is with. There are also likely to be some fees involved, particularly if you are looking at refinancing.
Sandra Crossland is an independent mortgage broker with the Loan Market Group and a member of the Mortgage & Finance Association of Australia.