Over a third of Australians struggle to pay their home loan
One in eight mortgage holders in Australia are extending the terms of their loans, potentially adding years and significant costs, to reduce their monthly repayments, according to research by comparison site Finder.
Its survey of 1,012 respondents, including 292 mortgage holders, revealed that 13% have extended their home loan terms in the past 12 months to lower repayments, translating to roughly 429,000 borrowers who have lengthened their loan terms in response to rising interest rates.
Households with the average loan size have seen mortgage repayments increase by over $21,000 per year since rates began climbing in April 2022.
Finder’s research indicated that 7% of mortgage holders, or about 231,000 borrowers, extended their loan terms by less than five years. Another 6% extended their terms by five years or more, potentially incurring thousands of dollars in additional interest over the loan’s lifespan.
Finder’s Consumer Sentiment Tracker found that over a third (34%) of Australians struggled to pay their home loan in June, up from 26% in June 2022.
According to Richard Whitten (pictured above), home loans expert at Finder, borrowers are taking drastic measures to afford their mortgage payments.
“While extending the length of your home loan will lower your monthly repayments in the short term, it’s probably going to cost you a fortune over the long run,” Whitten said.
“The average Aussie household has much less disposable income compared to a few years ago. Many are desperate for ways to slash their monthly outgoings, even if it means sacrificing their long-term financial health.”
Whitten noted that even a small increase in the loan term can result in significant additional interest.
“Since lenders calculate interest daily based on the outstanding balance of a loan, over time, that can add up to a significant extra burden in interest,” he said.
With the average loan size in Australia now at $625,050, Finder's analysis shows that repaying this loan over 30 years would cost a typical homeowner $722,602 in interest at a competitive variable rate of 5.99%. Extending this to 35 years would add an extra $147,457 in interest.
For a borrower with a $1 million mortgage, the interest increases from $1,156,066 over a 30-year term to $1,391,980 over 35 years.
Whitten advised borrowers who have extended their loan terms to consider paying down their debts faster when possible.
“When you’re stretched, you need to lower repayments straight away,” he said. “But if you find yourself in a position to do so down the track, consider putting extra money into your home loan to make up for the costs that come with extending your loan.
“Most variable mortgages have a redraw facility, so homeowners can make extra repayments and still get access to those funds in an emergency.
“If your loan has an offset account, it’s even better. You can park any extra savings there, get the full benefit of offsetting the interest charges and have complete access to the money when you need it.”
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