Is the great Australian dream worth risking your future for
Wilson Luna
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Ahh, the great Australian dream: three bedrooms, backyard and a Hills Hoist all your own. But with the cost of living in Australia continually on the rise, for many people that dream is rapidly becoming a nightmare. Do you know how to take control of your mortgage to prevent it from damaging your financial future?
Home ownership has long been considered the ‘great Australian dream’, but for many mortgage-holders, the three bedrooms, backyard and Hills Hoist have turned into a nightmare that’s seriously threatening their financial security – and their future.
It was recently revealed that house prices here in Australia are the highest in the world – and are apparently overvalued by up to 56%. Simply put, we pay more on average for our four walls than anyone else in the world, and although the Reserve Bank has kept official interest rates on hold at 4.75 per cent since November 2010, the cost of living in Australia keeps going up, making it increasingly difficult for cash-strapped households to make ends meet, even with the stability of steady mortgage payments.
And it’s starting to show in the market – recent figures revealed that home loans dropped again in February this year, sinking to the lowest point in a decade, and CommSec’s Market Bulletin reports that a recent 36 per cent drop over a three-month period makes up the biggest such slide in 32 years. While this slump suggests that people are hesitant to take on debt at the moment, which is an encouraging sign of responsible money management in Aussie households, it also indicates a drop in the number of potential buyers, making it harder for people trying to get out of mortgages they simply can’t afford to keep.
Mortgage stress can lead people to make desperate choices, and in a worrying trend, some Australians are choosing to sacrifice their retirement savings in an effort to prevent foreclosure on their mortgages. In the eight months since July 2010, almost $50 million has been released by superannuation regulator APRA, with an estimated $25 million more to be doled out before the end of the financial year. Taking a chunk out of your retirement savings is a risky strategy as far as your future is concerned, and it’s not likely to be a good long-term solution – if you need to tap into your super to avoid losing the house, it’s a pretty strong indication that you’ve got more mortgage than you can really afford. And you need to ask yourself whether hanging onto the house now is worth risking your security later in life.
If you’re having trouble keeping up with repayments – or if you hold your breath every time the Reserve Bank meets to discuss interest rates – you need to stop and consider your options before it’s too late. Getting the right mortgage advice and exploring all your options could mean solving your mortgage troubles without losing the house or sacrificing your future, and these simple tips could be the first steps toward to banishing your mortgage nightmare:
Ease the squeeze
Speak to your lender about using a ‘financial hardship’ provision to take a break from repayments, extending the loan term or making interest-only payments for a while. These are short-term solutions, but may buy you some breathing space to consider more permanent alternatives. But beware – they will end up costing you more in interest in the long term.
Explore your options
Speak to your lender about getting a better deal, seek independent advice about refinancing, and consider all of the options available to you. Checking online comparison sites can be a good way to get a general idea of where you can get a better deal, but remember that government charges and exit fees aren’t included in the comparison rate; although there is now a ban on exit fees on new loans taken out after 1 July 2011, the fees may still apply to existing loans and you will need to take them into account if you’re considering refinancing.
Get out before it’s too late
Although wanting to hang onto your family home is understandable, this might not be the best financial strategy. Seek advice to find out if selling and downsizing to something more affordable is an option. If selling isn’t possible, consider renting the property out to cover the mortgage payments and renting something cheaper to live in.
The important thing to remember is not to do anything without seeking advice – there’s absolutely no point rushing out of a bad situation into a worse one by making the wrong choice.
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Tags: cost of living in Australia, mortgage advice, money management
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Wilson Luna is an author, wealth adviser and founder of Your Family Your Money. Your Family Your Money’s goal is to simplify traditionally complex financial strategies, demystify financial jargon and debunk common financial myths, becoming every family’s first stop for financial advice, information and inspiration.
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