Can’t afford your home loan repayments? Here’s what to do. Imagine you’ve finally bought your dream home, but with rising interest rates, your mortgage repayments have gone through the roof. Now, on top of everything else life throws your way, you’re struggling to make ends meet, you’re not alone. Many Australians are feeling the pressure of increased home loan repayments, especially with the rising cost of living so, what can you do?
How Rate Hikes Impact Mortgage Repayments
First, let’s talk about how a rate hike can impact your mortgage repayment. When interest rates rise, it can lead to an increase in your mortgage repayment amount which can result in a higher overall cost of borrowing over the life of the loan. This is because the higher interest rate will increase the interest you need to pay on your mortgage and we’ve been seeing that cash rate hike for the better part of the year. So, those who locked in their interest rates at the super-low rates during the pandemic are now feeling the effects of this. For example,
Sample Computation of an Increased Repayment Cost
someone who took out a $500,000 mortgage three years ago with a 2.5% interest rate is probably paying close to 5.25% interest now. At the original interest rate of 2.5 percent, the monthly mortgage repayment would have been around $1,970 but with an increase of 2.75 percent, the new monthly repayment would be $2,940 which is a $970 difference. So it has been a stressful time for many homeowners. What are your options if you can’t afford to pay your mortgage? While ignoring the situation is tempting, acting early is better in the long run. Obviously, a good
Home Loan Health Check
first step is to take a look at your financial situation and have a clear idea of what you can afford. This can include knowing what income you have coming in, your essential expenses, and how much you can put towards repayment on your mortgage and other debts. Have a look at if you have any repayment buffer. If you have a piggy bank feature like an offset account or
Offset Account and Redraw Facility
redraw facility that you can dip into, use it as a cushion to fall back on if you’re struggling with your mortgage repayment.Then you should contact your lender and see if you can negotiate your
Negotiate Your Interest Rate
interest rate. There’s no guarantee that they’ll reduce your rate, especially at a time like this, but you have nothing to lose by asking. Best case scenario, they’ll say yes. If not, you don’t have have to stick with your current lender. You can look to refinance your mortgage elsewhere.
Of course, refinancing comes with fees so it shouldn’t be something that you rush into. But if you think it can help you save money, it might be a good idea to research and speak to a mortgage broker. If neither of these two options is going to work for you, it might be time to discuss other options with your mortgage broker to make sure you find the right solution. They can walk you through alternatives like payment assistance programs. Again, it’s better to do it sooner rather than later because if you leave it too late and default on your loan, this can have a serious impact on your credit score. Rather, use the help available to you and meet your lender in the middle.
Thanks for watching. I hope you found the information helpful and gain some insights on how you can manage interest rate hikes on your mortgage repayments. Remember, taking proactive steps early can help you avoid financial stress and save you money in the long
Get professional help through a mortgage broker
run. If you need more help or guidance, don’t hesitate to reach out to your lender or consider working with a mortgage broker to explore your options. If you’ve enjoyed this video, please give it a thumbs up and consider subscribing to our channel for more informative videos like this. And as always, feel free to leave a comment below if you have any questions or if there are any other topics you’d like us to cover in the future.