Yahoo Finance 584,000 at risk of mortgage stress: Are you?
Mortgage holders are getting increasingly worried about interest rate rises but it can be hard to tell before rates rise how you will be affected.
But there is a way to tell if you are one of the hundreds of thousands of Aussies who will be put in ‘mortgage stress’ as a result.
A person is considered to be in ‘mortgage stress’ when more than 30 percent of their income is spent on their mortgage.
Also read: RBA keeps rates on hold: Mortgage holders fear future hike
Also read: ‘Need a buffer’: RBA’s warning to 1.1 million Aussies
In a simple scenario, if you borrowed $500,000 over a 25-year loan term, with a variable interest rate of 2.7 per cent (the average as of December 2021), your monthly repayments would be about $2,294.
A 1 per cent rise could mean $3,156 extra on the mortgage per year - something more easily said than done for many Australians.
“According to Roy Morgan, an estimated 584,000 mortgage holders were at risk of mortgage stress at the end of 2021,” Savvy managing director & home finance expert Bill Tsouvalas said.
“This is after numerous government interventions, such as extended payment holidays, JobKeeper/JobSeeker, COVID disaster payments, and so on.”
Tsouvalas said now that Government debt was at record levels, it was unlikely that whoever was running the country after the May 21 election would be willing to bail out homeowners.
“What is pleasing to note is that unemployment is at near-record lows, which should push wages higher, especially in services where employers are scrambling to fill positions,” he said.
“If you are a homeowner and haven’t fixed your rates, the time to act is now.
“Refinancing at a lower rate is also better to start sooner rather than later because, with all indicators pointing to rising inflation, rates will definitely start shifting upwards."
Wage rises need to happen now
If wages rise in proportion with inflation, this may not be as big a problem as it seems, according to Savvy research.
According to the ABS, the Wage Price Index only rose by 2.3 per cent over December 2020 to December 2021.
If a household with a combined income of $135,720 (the average wage in Australia multiplied by two) were to get a 2.3 per cent pay rise that would amount to an extra $3,121,56 per year.
If that household experienced a 1 per cent increase in interest rates, they would only need to come up with $35 extra per year to accommodate the higher mortgage repayments.
That may hardly register as a blip in the family budget and could be absorbed with little effort.
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