Every week new research comes out showing Aussies just how doomed we are when it comes to homeownership.
First home buyers are pretty much stuck in the rental-market forever (unless mum and dad step in), property prices continue to soar resulting in sky high mortgages and doing the rounds more recently, a study by Roy Morgan shows dual income households are up the creek if one person loses their job.
Ok, it sounds all a bit doom and gloom. So let’s focus on the positives:
- If you are one of the 3.2 million mortgage holders on a dual-income chances are – unless you bought in a Queensland mining town – your property has appreciated in value.
- There are heaps of measures you can take on to ensure, even if one of you does wind up unemployed, you’ll steer through that period without the banks knocking on your door. Which brings us to…
Mozo’s top tips for giving yourself a home loan buffer:
Tip #1 Don’t stretch your budget too far
It may seem an obvious tip but with house prices nearing the million dollar mark in Australia’s major cities, getting a decent size property for you and your family may tempt you to pay a premium. But it’s a wise idea to only borrow what you can afford to repay on one income, as that way you’ll know if one of you does lose your job, you’ll still be able to meet your repayments. Also make sure you budget for any potential rate rises, as you may be able to easily afford your repayments when rates are under 4% but what will happen if they start to climb upwards again over the next few years? Remember the official cash rate was once as a high as 17.50%.
Tip #2 Get ahead on your home loan repayments
Most home loans these days come with the handy feature of an extra repayments facility. So while you’ve got two incomes coming in, set up a budget each month that will see you putting more towards your home loan than your agreed ongoing repayments. That way if you do find yourself in a situation where you’re on one income, you’ll be ahead on what you owe and may be able to take a repayment holiday. And if you so happen to both keep your jobs, then the plus is you’ll pay off your loan earlier than expected.
Tip #3 Take out mortgage protection insurance
Another option is to take out mortgage protection insurance (not to be confused with lenders mortgage insurance which protects the lender), this cover will actually protect you the borrower by paying your home loan repayments up to an agreed amount if one of you loses your job or becomes unwell. This is the type of thing you need to do your research on, to find the best deal, as each insurer has different caps on the length of time they’ll pay your mortgage for. For instance, one policy we looked at would cover your repayment for up to 30 months if you are injured or suffer from illness, but only up to 90 days for involuntary unemployment. Also make sure you check that the policy will cover up to 2 people before you sign on the dotted line. The good news is most of the insurers that do allow for two income cover, will let you tailor the amount of cover for each person.
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