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How to stop your great Australian dream from becoming a nightmareAnalaura Luna
Inevitable interest rate increases and the rising cost of living can put families under a lot of financial pressure, particularly when it comes to the keeping the great Australian dream of home ownership alive ... are you ready to tackle new rate rises? Aussies love owning their own homes; leaving renting behind and entering the ranks of ‘homeowner’ has long been considered a rite of passage – a sign that you’ve finally ‘made it’. But after the contracts are exchanged and the champagne corks have popped, the harsh reality of buying into the great Australian dream sets in – and as the cost of living continues to rise, finding the money to really make your home yours (instead of your lender’s!) can turn into a struggle. Recent figures suggest that this is a struggle that many families are losing: arrears of 30+ days on low-doc home loans soared past GFC levels to hit 6.74 per cent in the first quarter of 2011, and arrears on prime residential mortgage-backed securities spiked to a record high of 1.79 per cent. In March alone the Commonwealth Bank reported an 11 per cent increase in delayed payments, with ANZ and Westpac releasing similar figures – clearly, maintaining the great Australian dream is becoming too much for many people. So it’s time to face facts. Interest rates will go up – the only questions are ‘when?’ and ‘how much?’ For families already stretched to the limit, any increase could catapult them into ‘housing stress’ – which means that housing costs take up more than 30 per cent of your household income. When the costs reach that level, keeping hold of your home can be almost impossible and we’re already starting to see the impact of people being caught out by rate rises – in December 2010 alone, the NSW Supreme Court issued 146 writs of possession. Sadly, 44 of those mortgagees lost their homes. If your family is feeling the strain and having trouble making repayments, this is could be really scary stuff to hear. But there are things you can do to protect your finances and your family, and the best time to start getting ready for a rate rise is before it happens. Fix it The gap between fixed and variable interest rates is decreasing rapidly, so now could be a good time to fix your rate and gain some security. While locking your rate in can be a problem if interest rates drop again, finding a low fixed option could mean valuable savings. Get mortgage advice from your broker, look into the pros and cons of fixing, shop around for options, and maintain the highest payment possible to really cut into that interest. Pay weekly We think of a month as being roughly four weeks – but there are 52 weeks in the year, and that’s 13 blocks of four, not 12. One of the best saving techniques when it comes to your home loan is paying weekly. You not only break your mortgage repayments up into more manageable chunks and you pay more off over the course of the year than you would by paying monthly – and that makes a big difference to the interest you pay on your loan. Take a look: Total interest on $300,000 @ 7.81% over 30 years paid monthly = $477,874. Total interest on $300,000 @ 7.81% over 30 years paid WEEKLY = $344,862. Plus, paying weekly eats into more of your principal as well. In the above scenario, paying that mortgage weekly will have it paid off in 23 years, not 30! End the nightmare While it can be difficult to let go, if your family is really suffering under the repayments your best option may be to take control of the situation by selling the house, clearing the mortgage and starting again. It’s a tough choice, but can create a better result than hanging on till the bitter end and taking the risk of losing everything through foreclosure. Interest rate increases and the rising cost of living in Australia are making it tough for a lot of families, but if you take control now, you’ll be able to save money, reduce the pressure and get back to really enjoying life. Because the ‘real’ great Australian dream isn’t just about owning a block of land – it’s about having security and happiness for your family in the future. So if you’re struggling, take some simple steps to get back on track and give your family some breathing space – it’s what living the dream is really all about. Want to make 2011 the most powerful financial year you've ever had?
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If you liked this article you might also be interested in these other articles about money management:
How to cope with the rising cost of everything
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Author's Biography |
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Analaura Luna is an author, wealth adviser and founder of Your Family Your Money. Your Family Your Money’s goal is to simplify traditionally complex financial strategies, demystify financial jargon and debunk common financial myths, becoming every family’s first stop for financial advice, information and inspiration. |
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