It is estimated that around 469,000 households will be suffering mortgage discomfort by December and the number of those in severe stress (facing a potential sale, foreclosure or forced refinance) could be as high as 267,000.
How can at-risk borrowers stay out of trouble, save money and own their property sooner?
Spokesperson for Mortgage Choice, Kristy Sheppard said, “There are simple strategies that can help borrowers avoid mortgage stress, reduce their loan term and the interest owed. It’s about them taking control of their finances by managing the mortgage instead of letting it manage them.”
“Common causes of mortgage stress are higher interest rates and rising living costs. However, over-indulgence in post-mortgage debt is also a big concern.
“Mortgage Choice’s 2010 Recent First Homeowner Survey revealed 15% had taken on within the first two years what they saw as ‘significant’ post-mortgage debt. Of those, 70% had spent between $0 and $20,000, 26% had racked up between $21,000 and $50,000, and 4% had extra debt of $51,000 or more.
“If these borrowers and others facing a similar situation want to better their mortgage situation they need to be proactive in their repayment strategy. By maintaining additional, higher and/or more regular repayments, sticking to a budget, fully utilising the loan facilities available and regularly ‘shopping around’, borrowers can potentially fast-track their way to outright ownership.”
Consider Mortgage Choice’s top tips:
- Contribute your change. Based on a loan of $300,000 at 7% over 30 years, if you round the monthly repayments of $1,996 up to $2,050, the loan will be repaid approximately one year and eight months earlier, saving you over $25,000 in interest.
- Make a dent. If you deposited your tax return of, say, $500 into the above mentioned loan, it would reduce the term by one month and the total repayments by over $2,350. Doing so annually would make a significantly larger dent.
- Make the most of loan features. If a borrower has $5,000 in a loan offset account, a $300,000 loan (at 7% interest pa) the term would be reduced by around one year and the borrower would save over $33,000. It’s worth enquiring about, but be mindful of any ongoing account keeping fee.