The good news keeps coming for Australian home owners and potential buyers, with the Reserve Bank of Australia (RBA) announcing it is leaving interest rates on hold at 2.5 percent – for a least another month.
While variable borrowers breathe a sigh of relief after 11 consecutive months with no rate change, RateCity research shows that Australian home owners are battling harder than ever to pay down their debt, including their home loans.
Though recent RBA data shows low interest rates and booming property prices are helping to improve Australia’s debt-to-asset ratio, household debt in comparison to household disposable income is moving in the wrong direction.
“While it’s all well and good for the asset value to be rising, it’s the ability for Australian consumers to be able to pay back their home loan that is important,” Alex Parsons, CEO of RateCity, said.
“The ratio of household debt to household disposable income has been going in the wrong direction in the last 12 months on average.
“What that means is that it’s harder for Australian borrowers to be paying back their home loans and that’s where it really hits in the hip pocket for ordinary everyday Australians. This looks set to worsen with the impact of the Federal Budget.”
While it can be tempting to loosen the purse strings and splurge during times of low interest rates, you could be missing out on a great opportunity to tear a huge chunk off your mortgage, while saving yourself thousands and years off your home loan.
“My number one tip is to get a handle on your debt as quickly as possible, and pay off as much as you can while interest rates are at these low points,” Parsons suggested.
“If you’re able to afford just over $3 a day extra – the cost of a takeaway coffee for most people – that’s $100 a month so on the average mortgage of $300,000 over 30 years and could save you $40,000 off the cost of that home loan. Where else could you make those types of savings with such little impact?”
While there hasn’t been an interest rate increase for over 3.5 years, Australian home owners and buyers need to remain vigilant and factor in a rate rise before it happens so that they are prepared for an increase in repayments, which could significantly impact their current lifestyle.
“Historically rates have been much higher – at around 7 percent, on average. So don’t max yourself out today because over time I believe interest rates will go back up,” Parsons said.