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Nearly 1 in 3 Australian households are in mortgage stress. Can you afford an interest rate hike?

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Recent data has indicated that mortgage stress and defaults are set to increase this year. Information gathered by Digital Finance Analytics states that over 32% of Australian households are experiencing mortgage stress and if interest rates rise, a further 82,000 Australian households are at risk of defaulting over the next year. Are you one of them?

Can you afford an interest rate hike? Take the test...

  1. Add an extra 3% to your current interest rate below
  2. Enter your remaining loan amount and loan term
  3. Hit calculate

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  • Will you struggle to afford these extra repayments?
  • Is your new repayment over 30% of your monthly household income?

If you've answered yes to either of these questions you may be at risk of mortgage stress. However, there are still lots of options available, chat with a Home Loan Specialist today for free expert advice.

6 Tips to avoid unnecessary stress

#1 Consolidate your credit cards or other loans

Think about consolidating your higher interest debts like credit cards, car loans and personal loans into your home loan. Rolling all of your debt into one regular repayment and can help reduce your overall repayments. This can mean the interest you pay on your credit card can drop from approximately 20% to 4%.

Try our debt consolidation calculator here.

#2 Prepare for interest rate rises

Don’t expect interest rates to remain low. Consider your ability to make repayments if your interest were to increase by 2 or 3 per cent. Try to make extra repayments when you can, keep your credit file clean and make sure that you keep your finances in order by budgeting.

For example, if your 4 per cent interest rate (on a $500,000 loan, with a 25 year loan term) jumped to 6 per cent, your monthly repayments would increase by $583. If your rate increased by 3 per cent, it would mean you can expect to pay an extra $895 each month.

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#3 Buy a home you can afford

These days Australia is property mad and auction bidding can escalate quickly, but try not to spread yourself too thin. If you're buying, you'll need to factor in closing costs (e.g. stamp duty) and you'll need to prepare yourself for possible rate rises. Don’t get starstruck by your dream home or pushed into something by a real estate agent.

Struggling with repayments? Switch to a better home loan and save.

#4 Shop around for the best deal

Interest rates change all the time. Try to always make sure that you always have the best deal. Our Lendi data shows that, based on an average Australian home loan of $371,100, households could save up to $162,458 over the life of their 30-year loan by simply negotiating or switching lenders to get the best rate available.

This equates to a saving of $5,412 each year in repayments. When circumstances change and interest rates rise, every penny you save counts!

#5 Consider putting extra funds in an offset account

By keeping cash, such as your salary, in an offset account rather than a savings account you can automatically reduce the total amount you are paying interest each month.

For example, if you owe $500,000 on your home loan and have $30,000 in an offset account, your lender will only charge you interest on $470,000. This is a small move that could save you thousands in the long run.

How much can you save with an offset account?

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#6 Protect yourself from unforeseen circumstances

There are a few types of insurance that can help you prepare to expect the unexpected. These include income protection insurance which can provide a percentage of your income if you are out of work due to illness or injury.

In the case of death, life insurance can provide surviving family members with the finances to continue meeting home loan repayments and avoid selling the family home.

How do you know if you're experiencing mortgage stress?

If you’re experiencing any of the following, it’s quite likely you’re experiencing mortgage stress:

  • If your home loan repayments are more than 30% of your salary
  • If you are worried about coming to the end of your interest only period
  • If you struggle to pay household utility bills
  • If you can’t afford to pay more than the minimum on your credit card payments

Why do borrowers default?

There are a number of reasons borrowers experience mortgage stress:

  1. Divorce or separation: This is a common reason. Relationship break downs can come with significant financial implications.
  2. Illness or unemployment: Sometimes the unexpected happens and a sudden loss of income can bring home loan repayments to a standstill.
  3. Unexpected death: Funeral and burial costs can be a significant burden on families as well as the loss of income if the deceased family member was paying a portion of the mortgage repayments.

How much could you save with a lower interest rate?

Calculate your loan repayments


Got a home loan question? Just ask!

We're here to help. Get free expert advice at a time that suits you. Choose a time to chat with a Home Loan Specialist here.

The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: default, home loan, interest rate, offset account, debt consolidation

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Important legal stuff

Lendi is the trading name of Lendi Pty Ltd (ACN 611 161 856), a related body corporate of Auscred Services Pty Ltd (ACN 164 638 171, Australian Credit Licence 442372). We will never sell your email address to any third party or send you nasty spam, promise.
# Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
Lendi is a privately owned and operated Australian business. Our mission is to change the way Australians get home loans by providing a faster, smarter and more secure home loan experience designed around the customer’s convenience and needs. Although Lendi compares over 1600 products (2,500+ products including feature and pricing variations) from more than 35 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. While Lendi is 35% owned by founders and employees, we have also been supported by some great minority shareholders including Bailador, Macquarie Bank Ltd and a number of Australian sophisticated investors.
*WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years. Fees and charges apply. All applications are subject to assessment and lender approval. Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria.
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