25th Oct 2017

Noel Whittaker’s simple tip for coping with mortgage repayments

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rate rise
Leon Della Bosca

The Reserve Bank of Australia (RBA) has kept the cash rate low for a record 14 months in a row, but with the Global Financial Crisis (GFC) well and truly behind us, many are predicting a rate increase early next year.

The historic low rates were put in place to protect Australians from the GFC and also to encourage spending. Most people took the opportunity to buy houses. Many borrowed more than what would normally be advisable, while some stayed within their means but will still be open to ‘rate-rise shock’ when the time comes.

And that time will come. Some experts are predicting that the rate will remain steady for at least six months, while others are expecting an increase early next year.

Either way, as finance guru Noel Whittaker says, it will be a wake-up call to anybody with a home loan, and especially to anybody having problems making their payments now.



So, if you’re one of the thousands of households that will face the pain of repayment stress, how does Noel suggest you cope with managing your mortgage?

“If you have a mortgage now, I suggest you try to maintain payments at a minimum of $870 a month for every $100,000 you owe. This is based on a 15-year term at 6.5 per cent. This will give you a huge safety buffer if rates do start to rise, or if you get into financial stress,” he says.

There you have it. A simple tip to beat mortgage stress. How will you face increased repayments when rates rise?

Noel Whittaker is the author of Superannuation Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions.

Related articles:
Superannuation and breakups
Recession proofing your retirement
Noel answers your money questions





COMMENTS

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KSS
25th Oct 2017
1:39pm
When I took out my mortgage in 2012 I factored in a rate rise to 10%. Then I paid that amount every month in fortnightly payments. I now have less than two years to go because I still pay the same amount. So no rate rise will worry me. Well not unless it rises above 10% in the next 19 months! But even then, given the outstanding amount is fully offset, I could just pay it out anyway.
Raphael
25th Oct 2017
4:16pm
Retirees shouldnt have mortgages unless they have investment income in which case it doesnt matter
chrissie
25th Oct 2017
5:55pm
I agree that retirees shouldnt have mortgages but if they were made redundant through no fault of their own, or the GFC affected them adversely, then maybe they have mortgages. Of course a lot of people thought they could make a lot of money and borrowed against their paid up properties and lost the lot and now they are in a mess and lining up for pensions.

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zachand
16th Nov 2017
10:38pm
This is an interesting situation and indeed the historical level of rates on the market. There are advantages in this, but you need a little more time to follow the situation. About mortgage market. There’s a huge choice of mortgage providers and products, so you need to know a bit about how each of mortgage type works, to decide between them. You must remember, however, that as an expat buyer, you might not have access to such a broad range of options.
The first thing you have to decide is whether you want a fixed rate or variable rate product. Fixed rate mortgages will guarantee the same interest rate will be applied for the duration of the agreement - usually just for a few years.
If you want to better understand some of the subtleties and better manage your finances, you can find information on different specialized resources and at the same time visit a blog where you will find personal finance answers to your questions.
Variable rate mortgages, however, can cost more or less depending on how the interest rates change.


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