When it comes to buying your first home, scraping together enough money to meet your lender’s deposit requirements can be a huge achievement, and it’s something that increasing numbers of buyers are struggling with. But it turns out that for many, the financial worries don’t stop there.
A new survey by Mortgage Choice has found that, despite interest rates being at an all-time low, first home buyers are worried about being able to pay back their loan. Almost a third said this was the biggest concern they had about owning a home.
The Reserve Bank of Australia made its most recent cut to the official interest rate in August, taking it to a record low of 1.5%.
The central bank first cut the cash rate by 0.25% to 4.5% in November 2011 when it began its monetary policy easing cycle. Since then it’s been cut a further 11 times to bring us to the current level.
Mortgage Choice chief executive John Flavell said the news that so many first home buyers are worried about their loan repayments was “disconcerting”.
“The reality is, interest rates have never been lower, meaning it should be easier than ever for borrowers to manage their debt,” he said.
“Most first home buyers would have an incredibly competitive rate — a rate they are unlikely to retain for the duration of their loan. If first home buyers are worried about meeting and managing their mortgage repayments now, how are they going to feel when interest rates start to rise?”
ASIC’s MoneySmart mortgage calculator, which lets you work out loan repayments for different scenarios, shows that the monthly repayments for a $350,000 mortgage at 4% interest over a 30-year term would be $1,671. In the quite possible scenario that interest rates doubled to 8%, the repayments would rise to $2568.
With uncertainty over interest rates making it so difficult to predict the total repayments over the life of the mortgage, it’s no wonder that first-time buyers are approaching the situation with caution.
Don’t stress too much though, here at Loop Financial we have the right tools and knowledge to get you started with your first home. Want to have a chat to see what you can do?
