HELP: I can’t afford my new mortgage repayments.
March has seen yet another rate rise which is the 10th consecutive interest rate rise in a row. If you took out a loan in the past 2 years. we are now at a point where your variable interest rate is likely above the rate the banks used to assess if you could afford your loan. Adding fuel to the fire is the increased cost of living: petrol, food, electricity, construction costs- all have gone up. So its only natural that many people are struggling to make their loan repayments.
Here are our key points on what you can do to help ease the pressure:
What are my options?
- Ask your lender for a cheaper rate. Retention teams are hot right now. If they don’t give you what you can get as a new client- leave. Refinance. It’s as simple as that.
- If you have other debts and if you have equity in your property then there is the potential to consolidate those debts to a cheaper rate bringing the repayments down.
- You can refinance to a lower rate and potentially extend the loan term. This will result in lower repayments. If you are older than 40 and plan to retire before 70 then there’s some considerations with this mainly around having an exit strategy so you can retire debt free so make sure you cover this in length with your broker. I tend to think having a small residual debt especially if you plan to downsize or use some of your superannuation to clear the debt is still a better option than renting and never owning a property and being faced with rent for the rest of your life and the banks are on this page too. It’s just making sure it’s covered off.
- Review your budget. Cancel subscriptions, bring your lunch from home, buy in bulk, consider a second source of income. Rent out a room in your home.
- What if you have done that and still can’t make ends meet. Or don’t qualify for a refinance? What are your options? Get in touch with your broker or lender direct. Banks have a hardship team and can offer you support usually for a period of 6 months whereby they may switch your loan to interest only which will bring your repayments down. You will need to have a clear demonstration of what will change at the end of the 6 month period but it will at least give you some breathing space. This should be a last resort however as it will impact your credit file and make it harder for you to refinance or get another loan for a period of time. But that said it’s far superior to defaulting on your loan as that will hurt your credit file also.
- And finally if you have a fixed rate period coming off say next year or the year after if you were lucky enough to have fixed for 4 years. Don’t put your head in the sand now. Here’s your chance to get ahead. Make extra repayments as though the fixed rate has expired and use that buffer to help you make your repayments in the future. And with a bit of luck by the time you actually come off the fixed rate rates will have come down already.
Do your best to hold on and NOT sell as most economists are predicting rates will come down.
If you wish to discuss this or need help navigating your way through this tricky environment- reach out.
0456 533 439