June 30th 2024.
Recent research has revealed that many homeowners with mortgages are facing a lot of stress as they try to keep up with their monthly repayments. According to a survey conducted by comparison website Finder, 13% of mortgage holders have opted to extend the term of their home loan in the past year in order to lower their repayments. This equates to a staggering 429,000 people across Australia. With the current average loan, homeowners have seen their mortgage payments increase by an average of over $21,000 per year since the Reserve Bank of Australia began raising interest rates in April 2022.
The survey also found that while 7% of mortgage holders have only extended their loan term by less than five years, a concerning 6% have added five years or more to their mortgage. This could potentially lead to thousands of dollars in additional interest over the life of the loan. Richard Whitten, a home loans expert at Finder, warned against extending the term of a loan, stating that while it may provide temporary relief in terms of lower monthly payments, it could end up costing a fortune in the long run. He also pointed out that the average household has less disposable income compared to previous years and many are looking for ways to decrease their monthly expenses, even if it means sacrificing their long-term financial stability.
Whitten emphasized that even a small increase in the loan term could result in significant differences in interest over the life of the loan. For instance, data from the Australian Bureau of Statistics reveals that the average loan size in the country is $625,050. Based on a competitive variable interest rate of 5.99%, paying off this loan over 30 years would cost the homeowner a whopping $722,602 in interest. However, extending the loan term to 35 years would add an additional $147,457 in interest, bringing the total to $870,059.
To put this into perspective, a borrower with a $1 million mortgage would end up paying $1,391,980 in interest over 35 years, compared to $1,156,066 over 30 years. Whitten advised those who have extended their loan to consider paying off their debts faster when they are able to. He also recommended utilizing any extra funds to make extra repayments in order to offset the costs that come with extending the loan term. Additionally, for those with an offset account, Whitten suggested parking any extra savings there to take advantage of offsetting interest charges while still having access to the money in case of emergencies.
The latest data from Finder's Consumer Sentiment Tracker also sheds light on the current situation, with over a third of Australians reporting difficulty in paying their home loan in June, compared to only 26% in June 2022. It is clear that many homeowners are struggling to keep up with their mortgage payments, and it is important for them to carefully consider their options before making any decisions.
It is important to note that the information provided on this website is general in nature and should not be considered personal financial advice. It is always recommended to consult with a financial advisor before making any financial decisions, as individual circumstances may vary. It is crucial to take into account personal objectives, financial situation, and needs before acting on any information found on this website.
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