Noel Whittaker
Noel Whittaker

Mortgage figures worrying in time of low interest rates

ACCORDING to the latest Fitch Ratings Dinkum Index, the number of Australian prime residential mortgages that fell behind in repayments increased by 40 per cent in the December 2012 quarter.

Mortgage delinquencies also increased by 3 per cent.

The figures are particularly worrying at a time when home mortgage interest rates are at extreme lows and are a wake-up call to borrowers to take control of their mortgage to make sure they don't fall into arrears.

Australia must be getting close to the bottom of the interest rate cycle which means the next interest rate movement could well be up. If you are experiencing problems making your repayments now, imagine how tough it will be if your payments increase as interest rates rise.

An easy way to create a safety buffer is to move to fortnightly repayments if you are paying monthly now. For example, if you are paying $3000 a month and you move to $1500 a fortnight you'll be paying back an extra $3000 a year without feeling it. This is because there are 26 fortnights and 12 calendar months in a year.

Another way to get ahead is to make repayments is to repay at least $800 a month for every $100,000 you owe. This will cut the term to 18 years if rates stay at around 6.5% but you will still be under control if rates go to 8.5%.

Your home is the most valuable asset you have and it can be extremely difficult to start again if you are forced to sell off because you can't keep up the payments. No matter what sacrifices you have to make, keeping up the mortgage payments should be a major priority.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: noelwhit@gmail.com.


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