Rates are on the rise again, not by the reserve bank but by the lenders themselves. This week St George moved up by 0.2%, Bankwest by 0.2% and ING by 0.15%. I’d be fairly certain that all lenders will increase their rates by a similar margin, the trend is that once one lender does it, the rest follow.
Also not all lenders inform you of what your new repayments need to be and if you are paying by direct credit onto the loan this can be a problem. If you aren’t getting written confirmation about repayment increases, call your lender to check what your repayments should be.
Back to the topic though, if you are having trouble paying your mortgage it is important to take action early and not bury your head in the sand. If the outstanding balance on your credit card is increasing each month, this is a clear sign that you are getting into financial difficulty and you need to do something about it. Call me if you want to talk through some strategies. Here are a few things you could do, but be aware that some of these are short term strategies.
- Reset your loan term – if you are 3 years into your loan, then by increasing the term back to 30 years it will reduce your repayments.
- If you have already been served a notice from your lender that you are in default you can actually apply to have some of your superannuation released to catch up on repayments.
- Change your loan to interest only repayments or ask your lender for a repayment holiday.
- Consolidate debts that you are paying a higher interest rate. Personal loans are typically paid off over 5-7 years, however consolidating these into your home loan means they will be paid off over 30 years which will lower the repayments. Of course the hidden trap here is that it also means that if you take 30 years to pay off that debt then you’ll pay a lot more interest so again you have to weigh up all the factors.
- Reduce your spending – for tips on this subscribe to the 5 part finance series in the left hand column of this page.
- Get a pay rise – negotiate with your employer to get a pay rise, work out what you need and ask for it. Make it a win / win for your employer by offering something in return ie you’ll do something extra or be more productive to earn the increase.
- Take a second job to increase your income while interest rates are high.
- Rent out your property and move into more affordable accommodation.
- Borrow money from family until you can afford things again.
- Take out the EFM loan and reduce your repayments by 20%
- Borrow more to pay off your HECS debt if it has a low balance. Someone earning $70K before tax pays a massive $5200 per year in HECS repayments. Of course HECS debts are only increased by the inflation rate of around 3-4% and your home loan is now close to 9% so these factors have to be weighed up.
That’s probably enough for now but there are many strategies to consider. If you run out of options of course you may have to sell your home but there are many things to try prior to that. Also economists are predicting rates will start to fall in 12-18 months so if that is true then you have to find a way to survive the next 18 months and then things will get easier.
Please read the disclaimer on this website about this information not being specific financial or tax advice.
