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Don't be a statistic: Reduce mortgage stress

Don't be a statistic Reduce mortgage stress

New research by RateCity shows that many households are at higher risk of mortgage stress. Discover why a large percentage of Australians are struggling to meet their repayments and how you can reduce your mortgage stress levels to make your life a little easier.

April 19, 2010

There are plenty of demands and pressures in our lives and the stress that comes with having a mortgage is more evident now, particularly for first-time home buyers.

Earlier this month the Reserve Bank raised the official cash rate by another 25 basis points, putting many home owners closer to mortgage stress levels.

Mortgage repayments getting tougher
RateCity estimated that since the official cash rate began to rise in October 2009, households earning the average income with a typical standard variable mortgage of $300,000 had its repayments increase by 3 percent of their incomes. And from an average household’s income, 27 percent of this is now paid towards their mortgage repayments, which is close to the ‘mortgage stress’ level of 30 percent.

Since September 2009, the average household monthly income had increased by only $120, yet the average monthly mortgage repayments based on an average standard variable loan of $300,000 has increased by $261.

Australia’s current mortgage stress levels are highlighted in a new study by Veda Advantage which reported that one in five Australians struggle to meet their home loan repayments. Of the 1,042 Australians surveyed, 82 percent showed their concern for mortgage stress and their ability to meet their repayments over the next year.

“It is a concern to see so many people worried about their financial situations over the next year because the reality is that interest rates are only going to increase further,” says Damian Smith, RateCity’s CEO. “The major risk surrounds first-time buyers from 2009, many of whom haven’t seen rising interest rates before.”

The light at the end of the tunnel
Just when you thought that rates couldn’t get much higher, a report by leading economists in The Sunday Telegraph said that interest rates are tipped to reach as high as 10 percent by 2012. But there is a light at the end of the tunnel Smith says, “There are several ways you can save on interest and reduce the impact of rising rates such as accelerating your repayments, linking an offset account to your loan or compare deals online and switch to a better rate.

“For example, by adding an extra $300 per month to a $300,000 home loan, with a projected average interest rate of 7 percent, you could save over $100,000 and reduce a 25-year loan by six years and seven months.”

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