You can’t turn on the television, the Internet or open a newspaper these days without hearing of more companies shredding employees from their workforce. If you’re worried about how you’d pay the mortgage if you lost your job, then it’s time to put some plans in place.
While you still have a job and the money’s rolling in, why not get ahead as much as you can. This will help you not only in the short-term but will assist your long-term financial situation too. Put any spare cash you have into your home loan.
Whether you opt to pay a little extra every repayment or drop a lump sun onto your balance it will all go towards reducing your debt. And if the worse come s to worse and you enter financial difficulty, you can re-draw these extra repayments from your mortgage (if your home loan allows this).
Another way to get ahead with your home loan is to keep making repayments at your old interest rate. That is, if an interest rate drop occurs, ask the bank to continue your repayments at the old amount. Many financial experts advise home owners to maintain their existing mortgage payments (whenever a rate drop occurs) in order to save thousands of dollars in the long run.
Know your rights
If you feel your job is under threat, find out exactly what your rights are when it comes to redundancy. How much will you be offered? What notice period, if any, will you receive? It’s always best to be prepared for what might happen.
Investigate what options your lender can offer you if financial difficulty occurs. Most lenders have hardship provisions for their customers in trouble so do seek help if you need it.
Consolidate your debts or refinance
Refinancing your home loan may be the best way for you to consolidate your debts. In simple terms, you take out a larger home loan and use it to pay off other debts like a credit cards or a car loan. This can result in substantial savings since the interest rate on your mortgage will most likely be lower than that offered on credit cards or personal loans.
If your home loan is full of hidden fees and lots of features you don’t use, then this might be another reason to look at refinancing. Make a list of features you’d like (and those you don’t need) and speak to your lender or a mortgage broker to see what’s available in the market. You’d need to weigh up any costs involved with refinancing versus potential savings from the new loan.
In the same breath, don’t hesitate to contact your lender and ask for a better interest rate, you may just be rewarded with your request, and this will save you the time and expense of switching loans.
Take out mortgage protection or income protection insurance
If job loss is a real concern to you and your family, consider taking out income protection insurance which will help you pay the bills (including your mortgage) if you can’t work due to redundancy or serious illness. You may need to have had insurance for some time before you can make a claim.
The other option is to take out mortgage protection insurance. Different to mortgage insurance (which covers the lender), mortgage protection insurance is where the borrower can protect oneself from failing to make loan repayments. Similar to income protection insurance it covers borrowers should they fail to meet their loan repayments due to unforseen circumstances, for example serious illness or redundancy. In most cases this type of insurance needs to be taken out when you apply for a loan.
There are many providers in the market offering the above products and costs will differ, so shop around.
Cut back on luxuries
While we all like to treat ourselves now and again, do you really need that second pair of new shoes in a fortnight? Do your golf clubs really need upgrading? Cutting back even just a little on your personal spending and luxury items can help to make paying your mortgage easier.
Bring your lunch to work, cut out those afternoon coffees and travel locally rather than heading overseas. Every little spare bit of cash will help if you’re facing unemployment.
While redundancy is a difficult prospect to have to face, there are measures you can make in this current economic climate to recession-proof your home loan.