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March 17, 2016

Aussies prepared for worst with mortgages

A new study by Mortgage Choice has found that almost one in four Australians have a financial buffer of more than 12 months’ wages in their mortgage.

According to the 2016 Money survey, 23.4 per cent of respondents are not only up-to-date with their mortgage repayments but have the equivalent of at least 12 months’ wages sitting in their offset account or paid off their loan. By comparison, in 2015, just 13 per cent of respondents said they were in the same financial position.

Mortgage Choice CEO John Flavell says it’s pleasing to see that so many Australians are building a significant financial “safety net” into their mortgage.

“Contrary to popular belief, it’s becoming more and more apparent that Australian homeowners are feeling pretty confident about their finances and are making financial decisions that reflect this confidence,” he says.

“The survey found that the vast majority of mortgage holders are ‘very comfortable’ managing their debt.

“Of course, this data’s hardly surprising when you consider that interest rates are currently sitting at 60-year lows, resulting in significantly lower mortgage repayments for most homeowners.

“Of the respondents surveyed, 83.3 per cent said they were either making additional mortgage repayments each month or had a decent amount of savings stored in their offset account.”

With interest rates so low, Flavell says now is the perfect time for mortgage holders to ramp up their mortgage repayments or plug more money into their offset account.

“The more money you contribute towards your mortgage each month or the more money you have in your offset account, the faster you’ll pay off your debt.

“Data from the Australian Bureau of Statistics shows that the average gross wage for an Australian full-time worker is approximately $81,000 a year,” he said.

“If the average worker was to have their net salary ($61,441) sitting in their offset account, they could potentially shave seven years off a $350,000 home loan with an interest rate of 5 per cent. Better yet, they’d be able to save themselves more than $153,000 in interest*.

“Having a substantial amount of money in your offset account or contributing additional funds to your mortgage each month can help you to shave years off the life of your loan and potentially save you thousands of dollars in interest.”

Across the nation, borrowers in Victoria and New South Wales had the biggest financial buffer in their mortgage, with 27.4 per cent and 26 per cent respectively stating that they have more than 12 months’ wages in their home loan.

Western Australia wasn’t far behind, with 24.3 per cent stating that they had more than 12 months’ wages in their mortgage, while 19.8 per cent and 19.5 per cent of respondents in Queensland and South Australia were in the same position.

“It’s interesting to note that Victoria and NSW are the frontrunners in this particular field, given that property prices (and therefore mortgages) are among the highest in the country,” Flavell says.

About Angela Young

Angela Young is the Associate Editor of Australian Property Investor magazine.

View all articles by Angela Young »

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