Financial experts suggest that if youre paying more than 30 percent of your income on your mortgage then youre experiencing mortgage stress. This could be costly in the long-run as you may struggle to manage debt.
For those who dont know, mortgage stress typically occurs when youre over-committed financially and it can lead to financial difficulty if interest rates rise, as you have not given yourself enough financial flexibility to manage your home loan repayments. In fact, according to research, on average Australians pay around 31.7 percent of their median income on mortgage repayments. This means that the average Australian home buyer is likely to be experiencing some degree of mortgage stress as paying any more than 30 percent of your wage for housing is considered as unaffordable.
Given that a recent report released by the Adelaide Bank on housing affordability showed that national housing affordability is declining, as the proportion of income needed to meet home loan repayments increased by 1.4 percent. This, say experts, is attributed to housing in Australia became less affordable during the 3rd quarter of 2015, which was due to the increase in the size of new home loans.
Housing affordability was the worst in New South Wales (N.S.W) where it is estimated that up to 38 percent of the average income was needed to pay a home loan. Of all Australian states, the Australian Capital Territory (ACT) was the most affordable, with home loans being approximately 19.3 percent of the average median income. Housing affordability has improved in Queensland (QLD), Western Australia (W.A), Tasmania (TAS), the Northern Territory (N.T) and the ACT.
First Home Buyers
Australian property prices are continuing to fall in N.S.W and Victoria (VIC)and with the Reserve Bank of Australia (RBA) leaving the official cash rate at 2 percent this is encouraging first home buyers to enter the market. First home buyer numbers increased by 3.8 percent in the last quarter. However, these numbers are still 2.2 percent lower than they were at the same time last year.
First home buyers currently represent between 15 to 16 percent of the Australian market. First home buyer numbers are the highest in N.S.W, VIC, QLD, South Australia (S.A) and the N.T, with the largest rise being recorded in N.S.W.
The average Australian home loan has now jumped to $380, 320. First home buyer loans are averaging $347, 367.
How Can You Pay Off Your Home Sooner?
With housing affordability being such an issue, many home owners are now asking, How can I possibly pay off my home sooner? Well, the good news is that there are still a number of ways that you can pay off your home loan faster. All you need to do is to be vigilant and be committed to your cause. Here are some tips to help you get started:
Pay off as much as you can, as fast as you can Paying your home loan off sooner will enable you to reduce the amount of interest that you pay and youll also cut down on the term of your loan. For instance, if you borrow $300, 000 at 5.68 percent over 30 years, then your monthly repayment will be approximately $1, 786 per month. Over the 30 years, youll end-up paying $326, 112 in interest. But, if you take 10 years to pay off your home, then youll only pay $94, 098 in interest. So youll save yourself $232, 014. The downside is youll need to find $3, 334 per month to reach your goal.
Pay more frequently By paying your home loan weekly, instead of monthly, youll actually make 13 monthly repayments rather than 12. This is because some months have 5 weeks in them and others have 4 weeks. Therefore, if you pay weekly then you are making an extra four repayments per year.
If rates drop, then keep your repayment the same Variable interest rates have dropped to their lowest levels over the last 2 years, but many home buyers have elected to keep their home loan repayment the same. This has meant that they are paying more off their home.
Consolidate your debt If you have any outstanding personal loans or credit card debt, then consider consolidating or merging this debt with your home loan. Personal debts such as credit cards and personal loans cost between 9 20 percent in interest. Whereas your home loan is hovering around 4 6 percent. So it makes sense to consolidate. But, if you consolidate debts make sure you pay more off your home loan to cover your additional expenses. Otherwise youll end-up paying too much in interest.
Use an offset account An offset account allows you to put any money you have in a savings account and this is then offset against your mortgage. For instance, if you have $50, 000 and a $250, 000 home loan, and you put your $50, 000 into an offset account then youll only pay interest on $200, 000 of your home loan.
Are you looking to pay your home loan off sooner? If you said YES, then contact eChoice, we can help YOU find the right home loan so you can save.
Written by eChoice
Since 1998, eChoice has helped more than 50,000 Australians secure a home loan through its network of over 25 lenders and hundreds of loans. Best of all our service is cost and obligation free!