Stresses of Paying off Your Mortgage: How to Deal With it Financially

Stresses of Paying off Your Mortgage: How to Deal With it Financially

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The housing market is extremely competitive right now. With the RBA offering interest rates as low as 0.1%, many Australian’s are flocking towards the housing market.

Before committing to your new, super-low interest rate, consider the value of the loan you’re committing to right now. Look at housing prices today. The current median house price is over $1 million for a lot of places including Sydney. Is that a price point that you will be comfortable paying off in the long term?

 

The housing market is extremely competitive right now. With the RBA offering interest rates as low as 0.1%, many Australians are flocking towards the housing market.

Before committing to your new, super-low interest rate, consider the value of the loan you’re committing to right now. Look at housing prices today. The current median house price is over $1 million for a lot of places including Sydney. Is that a price point that you will be comfortable paying off in the long term?

Remember, your mortgage is, for most people, the largest financial commitment that you will take on throughout your lifetime. For the most part, people commit to mortgage payments for as many as 30 years of their life.

With that in mind, are you currently making enough money to support a $1 million debt after considering interest rates? In the same way that interest rates are at an all-time low right now, this may change in the future.

So how do you ensure that you can deal with your mortgage debt financially?

Managing your repayments

Before you even go to take out the loan, you need to consider how much you can comfortably pay for a mortgage. While interest rates are very appealing right now, it’s best not to get caught up in the hype of it all. 

The best place to start is how much money do you already have saved up for your deposit? The amount that you can afford to pay down as a deposit affects the value of your loan. For the most part, your loan will cover 80% of the cost. Bear in mind that this may vary depending on where you get your loan. 

So if your loan covers 80%, that means you will need to come up with the remaining 20% as your deposit. Look at it this way. 20% of $1 million is $200,000. If you are struggling to come up with $200,000 as a deposit, then a $1 million house is not where you should be trying to shop.

always consider a buffer

A study done by the Australian Housing and Urban Research Institute in 2019, shows how Australians are faring when it comes to repaying their mortgage. According to the study, most Australians are no longer able to pay off their mortgage loans in time for their retirement. Consider the fact that 50% of Australian homeowners still have not finished paying off their mortgage by the time they reach the retirement age of 55 to 64 years.

30 years ago, that number was a mere 14% of people who still had mortgage repayments after retirement. What this means is very critical to consider for your future. In the past 3 decades, the number of people who still have mortgage payments after retirement is 3 times what it used to be.

So with all things considered, a good way to prepare yourself is by adding a buffer to your budget. IMB Bank recommends that you should factor in at least a 2% to 3% buffer on top of your current regular interest rate. A move like this creates a safety net for your finances if you should ever face an unexpected increase in your interest rate.

the downsizing option

Mortgage stress is described as the situation where your mortgage repayments absorb upwards of 30% of the money that you currently make.

Downsizing may be a good move for some people who are struggling with their finances due to mortgage repayments. Consider selling your current home and buying a cheaper property. Or if it’s not your primary home, many people opt to sell the property simply to pay off the mortgage on it.

More and more people are choosing this route today. The number of people currently looking to downsize their property has increased by 33% in the past year. Of this number, over 85% are at least 60 years years old.

think about your current debt situation

Simply put, we are not all in the same boat when it comes to debt. Some people have more debt than others. Some have more financial commitments or investments than others.

Remember, if your debt is for something that will add value to your life or assets, then that’s good debt. Things like your mortgage would fall under that category as you are paying towards homeownership. Bad debt, however, does not add any long term value like credit card debts, for example.

When considering downsizing or prioritising expenses, it really is a personal decision. Keep track of your expenses, budget wisely, and seek financial advice from professionals. Always try to live within or below your means.

MLS Finance is here to help take the stresses of a mortgage away with our holistic approach. Reach out to us now and find out how:

🌐 Website: Get in touch

📞 Call: 02 9635 1888

📩 Email: enquiries@mlsfinance.com.au

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