Money

How to avoid mortgage default

Paul Clitheroe.
Paul Clitheroe.

THE November rate cut would have been welcomed by many home owners. But for some, it simply won't be enough to provide relief from overwhelming mortgage repayments.

I came across some interesting research recently that pinpoints the main reasons why people struggle with their home loan, and in some cases the problems could have been avoided.

The 2010 research by RMIT on behalf of the Australian Housing and Urban Research Institute, focused on people whose home had been repossessed.

There were several key reasons why the home owners surveyed got into trouble with their loan. The overwhelming cause, reported by around 60% of respondents, was job loss or a reduction in working hours leading to a leaner pay packet. Around one in five said illness or injury prevented them from paying off their loan, and about the same proportion simply underestimated how much it would cost to own a home - both in terms of loan repayments plus other expenses.

Other reasons offered for being unable to meet repayments included relationship breakdown, taking on too many debts and high interest rates.

It's worth noting that most respondents gave more than one reason as to why they couldn't repay their mortgage. Many had run up big credit cards debts in order to meet their loan payments. This led to refinancing the loan to try and regain control of their money, which in many cases only worsened the situation.

Around 30% of the home owners surveyed took more radical action including trying to access their super to pay off the debt.

Sadly, only less than one in four sought financial advice on budgeting and other ways to manage their debts.

For anyone thinking of taking on a mortgage these findings highlight some important steps you can take to protect yourself financially.

The first is to be very realistic about the security of your job and your ability to handle loan repayments along with the raft of other costs associated with home ownership like insurance, rates, repairs and maintenance. Draw up a realistic budget and have a trial run at living on the money you'd have left over for spending once you've got a mortgage in tow. Remember too, this could be the budget you'll be living on for years - not just weeks or months.

Aim to save the biggest deposit possible, and factor in a few rate rises into your repayments. Interest rates may have fallen recently but it's a sure bet that over the course of your mortgage, rates will rise as well as fall, and it's vital that your budget can cope with increased repayments.

For anyone taking on a significant debt, having income protection insurance makes a lot of sense. It will provide a regular source of income if illness or injury prevents you from working.

Finally, if you're having trouble with your current home loan, seek help early. Don't wait until you've maxed out your credit cards or you've missed a few repayments.

Contact your lender and explain the situation or speak with a financial counsellor. Visit the website of Financial Counselling Australia (www.financialcounsellingaustralia.org.au) to find a counsellor near you. Many offer a free, or low cost, service.

Paul Clitheroe is a founding director of financial planning firm ipac, chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.   Visit www.paulsmoney.com.au for more information.

Topics:  mortgages


Stay Connected

Update your news preferences and get the latest news delivered to your inbox.

Reconciliation Week marked in Byron Shire

Informal gathering to take place this week

Shark nets to be removed early

Shark meshing nets

Trail nets have been in the water for almost six months

Labels highlighting Aussie produce tested on Northern Rivers

Deputy Prime Minister, Luke Hartsuyker with staff at Woolies in Byrn Bay.

Shoppers: Look for a kangaroo in a triangle

Local Partners

Northern Rivers drug driving rate 5 times state average

THE conviction rate for drug driving on the Northern Rivers is more than five times the state average, new research has found.

Ten awesome things to do this week

Editor of  Express Examiner Susanna Freymark interviews Casino's 2015 Mr Beef Chad Taylor.

From Mr Beef in Casino to Byron Bay Rugby

Chicago comes to Bangalow

CELL BLOCK TANGO: Actress Catherine Zeta-Jones in a scene from the 2002 film Chicago.

The next production by Bangalow Theatre Company

A ballet event of lovers and fairies in Byron Bay

ON STAGE: Byron Ballet's 10th anniversary production will be Shakespeare's A Midnight Summer's Dream.

Byron Ballet celebrates 10 years

Wonder Woman is a kick-arse superhero romp

WITH so much at stake, thank Zeus that Wonder Woman didn’t fall into the same trap as its DC Extended Universe predecessors.

Everything coming to Netflix, Stan, Foxtel and Amazon Prime Video this June

Orange Is The New Black returns for another season.

Find out what's being added to our streaming services in June.

Sam Armytage and Tom Cruise? Saaaaay what?

Apparently, the answer is no.

Musical tribute to flood volunteers released

Songwriter honours flood volunteers who helped their neighbours.

Lismore songwriter Simon Thomas was moved by strangers' kindness

Karl Stefanovic's rant about Schapelle Corby 'a bit rich'

Karl Stefanovic is sick of hearing about Schapelle Corby.

Maybe he just wanted to make himself the story.

Could Schapelle be heading for Gladstone?

Australian Schapelle Corby is escorted by Bali Police at the parole office in Denpasar, Bali, Indonesia, 27 May 2017.

Schapelle's mother teases her free daughter could be Gladstone bound

Six things you never knew about Men in Black

Mushu the pug

It's been 20 years since Men in Black first hit cinemas

This is real estate's billion-dollar man

Bob Wolff at AREC with John McGrath of McGrath Real Estate.

They don’t call him the “Billion dollar man” for nothing

Man's amazing comeback from monster crisis

Pat O'Driscoll agents Penny Keating and Doug Webber sold 56 Agnes St, The Range at auction over the weekend.

NOT long ago, he sold his possessions to pay staff. Now he's back.

Here's your chance to carp about feral pests

Carp might by great fun to catch but they're destroying Australia's watercourses.

Science in the Pub looks at carp and coral trees

SNEAK PEEK: What new shopping centre is going to look like

Artist impression of the proposed redevelopment of the cinema and shopping complex on Jonson St, Byron Bay.

Mercato billed as regional NSW's most sustainable shopping complex

How Toowoomba house prices compare in Australia

For sale sign in front of home.

Here's what $700,000 will buy you in Toowoomba, Brisbane and Sydney

Ready to SELL your property?

Post Your Ad Here!