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6 Tips for a Stress-Free Mortgage

Article By Janik Hrabovcak | | Financial Planning

Even in difficult financial times, home ownership is within reach.

Do you find the thought of getting a mortgage daunting? Don’t worry, you’re not alone. Buying a home is a big financial commitment and with soaring energy prices, rising mortgage rates, and many other financial issues set for 2023 – it can almost sound like an impossible goal. There are ways however, to make the process smoother, less stressful, and more achievable for you & your family.

Here are some tips to help you navigate the mortgage process with greater ease:

1. Seek affordability advice before taking out a mortgage:

It’s crucial to understand your budget and cash flow situation so that you don’t borrow more than you can afford to repay. In uncertain times, an experienced financial advisor can guide you and help you make the right choices for your situation.

A financial advisor will take into account your income, expenses, and other financial obligations to help determine how much you can realistically afford to borrow. They can also help you understand the different mortgage options available and guide you towards the most suitable product for your needs.

2. Build up a buffer:

Building up a buffer in a mortgage offset account is an excellent strategy to protect yourself from unexpected events in life. This type of account is linked to your home loan and works as a savings account that reduces the interest charged on your mortgage. Every dollar you keep in your offset account is effectively earning the same interest rate as your home loan, which is usually higher than the interest rate offered by a regular savings account.

Having a buffer in your offset account can provide you with peace of mind knowing that you have funds available to cover your mortgage repayments if you face unexpected events, such as an illness, job loss, or other unforeseen circumstances. This can help you avoid falling behind on your mortgage payments. By maintaining a buffer in your offset account, you can ensure that you can continue to make your mortgage payments, even if you experience a temporary loss of income.

It’s important to note that building up a buffer in your offset account requires discipline and planning. It may take time to accumulate enough funds to provide a meaningful buffer, and you may need to adjust your spending habits and budget to achieve your savings goals. You may need help to develop a savings plan that is realistic and achievable to help build up your buffer.

3. Take out personal insurances:

If you’re planning to buy a home, it’s important to consider the financial risks that come with homeownership. Unexpected events can happen, which is why having personal insurance is crucial. Personal insurance can provide a sense of financial security and peace of mind, especially in the case of unexpected circumstances.

Income protection insurance, for example, can cover a portion of your income if you are unable to work due to an injury or illness. Total and permanent disability insurance can provide a lump sum payment if you become permanently disabled and are unable to work. Critical illness insurance can provide a lump sum payment if you are diagnosed with a specified critical illness, such as cancer, heart attack, or stroke. Life insurance can provide a lump sum payment to your beneficiaries if you pass away.

Having these insurances in place can give you the reassurance that your mortgage repayments are covered in case of unexpected events that could impact your ability to work and earn an income. To ensure that the amount of coverage you have is adequate to meet your financial obligations, such as your mortgage repayments, it’s essential to review your insurance policies regularly.

4. Fix the interest rate:

If you’re planning to buy a home in 2023, it’s important to consider the potential impact of rising interest rates on your mortgage repayments. One way to protect yourself against this risk is by fixing the interest rate on your home loan. By fixing the interest rate, you can ensure that your repayments will remain the same for a set period, usually between 1 and 5 years, regardless of any changes to interest rates during that time.

This can provide you with greater certainty and stability in your budgeting and financial planning, as you’ll know exactly how much you need to set aside each month to cover your mortgage repayments. It can also help you avoid any surprises that might arise from sudden changes in interest rates, which can cause financial stress and impact your ability to meet your mortgage repayments.

However, it’s important to note that fixing the interest rate on your home loan can come with some trade-offs. For example, fixed-rate home loans may have higher interest rates than variable-rate loans, which can mean that you’ll pay more in interest over the life of your loan. Additionally, fixed-rate loans may have less flexibility than variable-rate loans, which can limit your ability to make extra repayments or pay off your loan early.

Before deciding whether to fix the interest rate on your home loan, it’s important to weigh up the pros and cons and consider your personal financial situation and goals.

5. Don’t spend more than you earn:

If you are planning to buy a home in 2023, it’s crucial to be prepared for tough times and unexpected events that can impact your cash flow. One effective strategy to manage your finances during tough times is to reduce discretionary spending. This means cutting back on non-essential expenses such as dining out, entertainment, and shopping.

While it can be tempting to use credit cards to cover expenses during tough times, this can lead to a dangerous cycle of debt with high interest rates. Instead, focus on reducing your spending and finding ways to increase your income. You can look for side jobs or start a side hustle to earn extra income, or negotiate a raise or promotion at your current job.

Another important factor to consider is the stability of your income source. If you are in a job that may be affected by economic downturns or unexpected events, it’s crucial to have a backup plan and consider other income sources or investments that can provide a cushion in case of job loss or income reduction.

By being proactive and taking steps to manage your finances, you can ensure that you have the resources to cover your mortgage payments and other essential expenses during tough times.

6. Review your situation:

If you’re struggling to meet your mortgage repayments or experiencing financial stress for any reason, seek advice as soon as possible. There may be a range of viable options to explore, such as refinancing or restructuring your loan.

In summary, taking out a mortgage can be overwhelming, but with the right approach, you can reduce the stress and make the process smoother. Seek advice, build up a buffer, take out personal insurances, fix the interest rate, avoid overspending, and regularly review your situation. These tips can help you enjoy the benefits of homeownership without the stress of a mortgage weighing you down.

How can we help?

We can help you assess your budget and cashflow situation and determine your affordability level. We can also determine your insurance needs and advise you on a range of other financial matters.

If you wish to speak to one of our financial advisers, please contact us here.

Altitude Financial Planning is a Corporate Authorised Representative of Altitude Financial Advisers Pty Ltd
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