Avoiding Mortgage Stress
Home ownership should be a happy place!
There’s no denying that a mortgage is a big responsibility, but by building a financial buffer you should be able to stay on top.
When you are first doing your home loan sums, plan ahead. For example, think about what might happen if there were a rapid increase in interest rates, if you lost one income, if you had an unexpected child. Would you have the capacity in your income to cover the extra expense, or do you have a back-up plan?
Build a buffer to beat mortgage stress
One way to be ready for an unexpected financial emergency is to make sure that you have a buffer built into your loan. By paying off a little extra every month you build up a cushion to make life a little easier in hard times.
A honeymoon discount rate for the first year of your mortgage gives you a great opportunity to reduce your loan right from the start. Simply pay higher repayments than you need to and you will immediately start eating away at the principal.
If you borrow to your financial limit, then consider an interest-only loan with an option to pay extra. Pay in the extra whenever you can, and only pay the minimum when you have less cash available.
Keep to a budget
A budget can help you take control of your money and make sensible decisions on how you spend it. It gives you a financial roadmap to follow.
Start by recording every time that you spend money, from big expenses to small. Without this, you won’t get a realistic picture of where your money is going – and you might be surprised by how quickly small expenses add up.
Many of the bills and expenses you pay, such as fuel, food, insurance, rates, mortgage, rent, telephone and electricity are repetitive and predictable. A budget gives you a framework not only to plan ahead for these expenses, but also to plan your future with confidence.
Taking a critical look at what you spend will also help you to make cutbacks that will enable you to pay extra off your loan. The more you pay off now, the easier your mortgage will be to manage in the future and eventually this could save you thousands of dollars in interest every year. Visit our online budget planner.
Cut down on credit
Credit card interest rates are often very expensive – sometimes over 20 per cent per annum. The best way to use a credit card is to pay off the FULL BALANCE of your credit card each month, i.e. not just the minimum repayment amount. That way you benefit from the convenience without paying punishing interest rates.
Sometimes the best way to escape the debt trap is to avoid it altogether. If you don’t think that you are disciplined enough to pay off the full balance each month then consider cutting up your cards and not using credit at all.
Use pay rises wisely
Have you ever had the feeling a pay rise would make all the difference to you, only to wonder where the money has gone when you actually received it? It’s too easy to fall into the trap of increasing spending when we have an increase in salary. Consider escaping this cycle the next time you get a pay rise by putting at least 50% of it towards increasing your loan repayments. That way you are building an asset that may help to make you money in the future.
Signs of mortgage stress
If you’re struggling to maintain regular expenses such as insurance and school fees, cutting down on things like pay TV and takeaways or using your credit cards for everyday expenses such as groceries, then you may be under mortgage stress. Everybody has to save for major expenses like a new car or television, but if everyday expenses are getting too much, then it’s time to take your finances in hand.
If you feel your finances are out of control call us on 1300 764 247 – there are ways we can help.