First homebuyers keen to get in before the First Home Owner Boost deadline on 31 December this year need to do their sums now – firstly to make sure they have enough saved for their deposit and purchase costs, which will probably be close to or more than 10% of the purchase price, and secondly, that they are in the mindset to cope with rate rises of at least another two percent.
When considering whether or not you can afford to repay a loan at a higher rate you need to closely monitor all weekly, monthly, quarterly and annual expenses. For example, if a fairly average borrower was to repay their loan at 8%, they could expect their current monthly mortgage repayment of approximately $1,850 to increase by about $305. They have to ask themselves if they can truly live without that $2,155 a month, plus the cost of food and utilities.
What young borrowers may not realise is coping with rate rises could be as simple as cutting back on a night out once a month or avoiding the car wash and doing it yourself. Small sacrifices can put you closer to achieving your dream, and when you consider the reward of living in your own home, you could find that it's well worth it!
Of course, the positive effect of a few little sacrifices varies depending on the amount borrowed and the length of the loan term. However, if you take out a loan and down the track you find repayments become a burden you can always shop around and refinance to a more affordable loan, keeping in mind possible costs to do so.
How do you feel you're placed to cope with rising interest rates? Has it put your home purchase plans on hold?