How Much Income Should You Spend On Your Mortgage?
As the property market rebounds, so too are deferrals. 81% of all mortgage deferrals from June of 2020 are now back on track. While this is undoubtedly great news, there are still 82,000 Australians who still have deferred their mortgage repayments.
This means that as the JobKeeper scheme comes to an end on 28 March 2021, we may see thousands of homeowners having to make some very difficult decisions by Autumn. So if your circumstances have changed and you think that you’ll struggle with paying off your mortgage, here’s a look at the basics of mortgage repayments and how a different loan might be able to solve the problem.
What Portion Of Your Income Should Go To Your Mortgage?
According to data from 2016 from the Australian Bureau of Statistics, the average Australian pays $1,755 per month for a mortgage worth $453,133. In NSW, the average monthly mortgage payment is $1,986, while in Victoria it’s at $1,728.
The standard advice is to ensure you have enough to pay for your home as well as other financial obligations. Ideally, you should be able to save as well, while you’re a homeowner. This is why it’s so important for homeowners to set a limit and stick with it when it comes to mortgage repayments.
Most lenders favour those who come in somewhere below 30% of their total monthly salary. The average weekly income of a full-time worker in Australia is $1,714 according to ABS data from May of 2020, with a monthly pay of $6,856. If the average income worker aimed for 28%, they would spend $1,919 per month ($6,856 x 0.28). For 30%, it would be $2,056 ($6,856 x 0.3).
Of course, everyone’s situation is different and there are those who can allot more of their income to their mortgage and still be financially comfortable. If you’re thinking of refinancing, now could be a good time to align your numbers. With interest rates as low as they are right now, it makes sense to capitalise before they start to rise.
If you want to get ahead of your payments before they get ahead of you, use our mortgage loan repayments calculator to get a sense of how long it will take for you to pay down your loan.
How To Improve Your Chance Of Paying Off Your Mortgage Quicker
You can have plenty of control over your mortgage situation. Here are a few steps to getting it right.
Talk to a Broker
You can only get so far on your own. Talking to a broker is the best way to alleviate mortgage distress by tackling the problem from several angles. Whether it’s changing the terms of your loan or lowering payments, there may be more options than you think.
Review Your Expenses
Cutting down on unnecessary spending and redrawing your budget can be a great way to keep up on your mortgage payments. You might have to be ruthless, but most homeowners have at least a few expenses they can trim.
If you start only paying interest on your loan, it can lower your monthly payment significantly. While not always recommended because it ignores the principal of the loan and increases costs in the long-term, it could be a smart move in the short-term.
In this scenario, you choose a set period of time to pay interest on the loan. The exact terms will need to be discussed and agreed upon between you and the lender. After time is up, your loan converts to a principal and interest loan. You have to make sure you can afford the repayments by the time the term’s end. You should consult with your accountant or financial advisor when considering switching your repayment type.
Refinancing to a new interest rate can make your mortgage payments lower too. There may be fees attached and you will need to meet a certain credit criteria threshold, but this could be a good way to put less toward your property. Work with your mortgage broker to find the best rate for your circumstances.
Consolidating your debts allows you to bring everything you owe under one umbrella. Not only will it mean you have one payment to make per month, but it can lower the overall interest you’re paying per month. However, it’s important that this is fully thought through as rolling debt into a home loan term, which is often much longer than other credit terms, can cost you a lot more in the long run.
Before you make any drastic changes, remember that what you want matters too. When everyone’s financial goals are different, it makes sense to look at how these changes will affect how you live and how much of your monthly salary you can allocate to living expenses and to your savings.
Shore Financial: Mortgage Brokers You Can Trust
Planning monthly mortgage payments is the key to not falling behind. Homeowners often learn this the hard way because they can’t always plan ahead. You also need to take into account what will happen in the future. From a new baby, to a sudden illness, to a job loss: how insulated are you from these major events? There’s no such thing as being prepared for everything.
The right home loan has a lot to do with what you will pay each month. In some cases, this will mean lifetime payments. In others though, it might make more sense to consider the short-term only until you can get back to a more stable position.
If you have questions about how to plan right now, Shore Financial is here to help. Our Sydney mortgage brokers will look at the above factors as well as your individual options. It’s our goal to help everyone afford their property, even when the economy stumbles. Call us today to see what we can do.