Crisis-proofing Your Mortgage
Spooked by the Sub Prime Monster?
If you're thinking of investing in real estate, should you buy now, or wait until the global markets settle? Over the last year, we have endured one of the worst financial crisis' in recent history. Despite this, local investors and the housing market in general have remained buoyant, so it could be said that now is as good a time to buy as any. The important thing is that you give more consideration to your ability to meet increased mortgage repayments, should interest rates continue their upward trend. With the sub prime crisis looming this is more important than ever.
Future-Proof Your Mortgage
If you're looking at a 500K house and you can only just meet the mortgage repayments, you could be caught off-guard if interest rates take a hit. Work out what the mortgage repayments would be if interest rates kept rising, and if you can't afford that now, reconsider your house-shopping budget to accommodate for potential rises.
Attempting to future proof your ability to meet mortgage repayments by downsizing the initial size of your mortgage can be a smart move, but only if you put the difference back into the mortgage. That extra $100 in your pay packet each week shouldn't be wasted.
The first few years of a mortgage are the most crucial in terms of the total amount of interest you will pay over the life of the loan. If you can pay off a lump sum early on, you'll save big on interest. For example, if you inject just $5000 into a $300,000 mortgage at 7.8% interest rate in the second year, you'll save a whopping $26,196 in interest over the life of the 25 year loan, and shave more than a year off the repayment time. Having a loan which allows redraw on these additional repayments can also offer you some level of security, should the unexpected arise.
Don't be spooked by the sub prime monster. Despite the uncertainties surrounding the current sub prime crisis, if you are smart with your investment you can still buy with confidence that you'll be able to meet mortgage repayments now and into the future.