Understand Your Mortgage Risk

Imagine if your home loan interest rate climbed from the current average (around 4.5 per cent) to reach a long-term average of 7 per cent.

In that case, almost half of Australian homeowners would find themselves under serious financial pressure, according to a recent report.1

In fact, if interest rates rose by as little as 0.5 per cent, around one in five mortgagees would find themselves in difficulty.

The report, based on extensive surveys of 26,000 Australian households in 2016, examined how much ‘headroom’ households have to deal with rising rates, taking account of their income, size of mortgage, whether they have paid ahead, and other financial commitments. And the results are distressing.

“Of note is the high proportion of households in greater Sydney in severe mortgage stress – at 6.2% of borrowing households. This is a function of large mortgages (driven by high prices), rising interest rates and flat incomes”, the report found.

There is no doubt that our love affair with property has pushed Australia’s residential housing market to an eye-watering value of $6.2 trillion. Even as the housing boom continues and we snap up property while interest rates are at historic lows, we need to be sure we actually can afford that investment.

Have you done the calculations on your own mortgage? If interest rates increased by 2 points would the added repayment create difficulties? Talk to Fast Debt Help and plan ways of avoiding financial stress from interest rate rises.

It’s not a hypothetical problem. In March, major banks like NAB and ANZ increased some of their mortgage fixed interest rate terms even with no official movement from the Reserve Bank.

“There are a range of factors that influence the funding that NAB — and all Australian banks — source, so we can provide home loans to our customers,” NAB Chief Operating Officer, Antony Cahill, said of the announcement.  “The cost of providing our fixed rate home loans has increased over recent months.”

Don’t be left behind with interest rate rises sabotaging your financial security. Understand your mortgage risk and be ready for things to change, as they inevitably will.

1Mortgage Stress and Defaults - December 2016, Digital Finance Analytics

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