If you are a senior you may remember when interest rates were as high as 17% back in June 1987. Since 1987 we have seen interest rates continue to decline to our present-day record-low mortgage rate. Currently, home loan interest rates are less than 2.9% per annum.
When home loan interest rates decline it gives us the perfect opportunity to reduce our mortgage debt by maintaining the same monthly repayments. The following research indicates that Baby Boomers have not implemented a debt reduction strategy but conversely increased their debt.
The Australian Housing and Urban Research Institute (AHURI) found that real mortgage debt for over 55’s has jumped by 600% from 1987 to 2015.
- In 1987 mortgage debt was about 71% of income for over 55’s. By 2015 mortgage debt was 211% of income for over 55’s.
- As a result of this mortgage debt, older mortgagees reported higher psychological distress than seniors that own their home outright.
- Women tend to be affected more by mortgage repayment issues than men.
- Based on the Bureau of Statistics Survey of income and housing homeowners in the 55 to 64 years age group, the proportion owing money on mortgages has tripled from 14% to 47%.
- For mortgage holders aged 55 to 64 years, there is evidence to suggest that they are delaying their retirement and prolonging their working life.
- In 2017 around 29% of lump sum superannuation withdrawals were used to pay down mortgages, purchase a new home or pay for home improvements.
LESSONS LEARNED
- While interest rates are low – do not have an interest-only loan.
- Pay additional amounts off your monthly or weekly mortgage.
- If you are paying your mortgage monthly change it to weekly.
- Have an offset account attached to your mortgage? Deposit your surplus savings, or savings marked for an emergency, in this account.
- Compare your home loan interest rates to competitors. Consider refinancing with a different bank or financial institution.
Should you have any questions with regard to paying off your mortgage sooner, please submit an online enquiry now or call Peter Quinn on +61 2 9580 9166. We also offer a FREE 45-minute consultation should you have other financial planning, taxation or superannuation issues you may wish to discuss.
The information in this document does not take into account your personal objectives, financial situation or needs, and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.