It seems that Australia and the Northern Territory in particular have largely dodged a bullet and we have weathered the global financial storm quite well. That said we may not be completely out of the woods yet, but most economists are saying that things should continue to improve from here, perhaps with the odd hiccup or two along the way.
So how does this affect people with a mortgage?
One thing almost for certain is that interest rates will continue to rise into 2010. We have seen interest rates at historically low levels for the last 12 months, I’m sure everyone understood that this could not continue right? Well it seems that for some, with interest rates at 40 year lows, it was a great time to get as far into debt as their lender would allow. Possibly not the best strategy in hindsight.
Banks cop a lot of flack about lending to people who cannot afford to repay the loan, but in their defence over the past 6 months in particular they have been raising hurdles and lending less. Most lenders have a buffer of at least 2% over the variable rate. For example if when you applied for your loan the variable interest rate was 5.5%, then your loan application was being assessed at around 7.5%.
So with this in mind, responsible bank employees, mortgage brokers and savvy customers have been calculating loan repayments prior to application at the higher levels to ensure debt is still affordable when the inevitable happens and rates move to more realistic levels. If you are unsure of how you will be affected if interest rates hit 7.5% or even 8%, speak to your lender sooner rather than later about this, or call a broker, they will be able to give you a good indication. If you think it’s going to be impossible to keep up the payments, you’re much better off knowing now so that you can plan ahead.
Another thing that tends to happen when rates are so low is that people become complacent about whether they are getting the best deal available to them. Interest rates have come down an enormous amount since their peak 18 months ago, so it’s easy to take for granted that your lender has done the best by you. Now is the perfect time to ensure that you are getting a good deal, so that when rates do climb further you have the peace of mind knowing that at the very least you have the right loan for your own personal situation. A good mortgage broker can in just a few minutes compare your loan with hundreds of other loan products to ensure that you have a great deal. Best of all most brokers will check your loan for free.
There can only be two outcomes from doing this, the first is that you will discover a better option that could show you a way to save a significant amount of money, the other outcome is that you will have confirmation that you currently have a very good deal. Did I mention that it’s usually free to check?
Dick Grant, Darwin Franchisee