1 in 3 Aussies have a less than one month buffer on their home loan repayments, despite the recent decline of interest rates, according to the Reserve Bank of Australia’s biannual Financial Stability Review.
Buffers, or prepayments, help Aussies with mortgages to cushion the financial blow if rates rise or they suffer a fall in income.
However, many other homeowners are still stashing their cash away for sake keeping, as the RBA also found that aggregate mortgage buffers, including balances in offset accounts or redraw facilities, account for 17% of outstanding loan balances or more than 2.5 years worth of repayments at current interest rates.
And despite the noted improvement in risky lending, thanks to an order by the Australian Prudential Regulation Authority (APRA), the RBA still believe that the key risk to the country’s financial system is due to a high level of mortgage borrowing, to owner occupiers and investors alike.
The Review also noted that 30% of Aussies who usually participate in business or investment ventures had a quiet year, resulting in a drop in income.
“A range of factors have contributed to the slowing, including increased housing supply, higher interest rates for some borrowers and an apparent reduction in demand from foreign buyers,” said the RBA.
As interest rates continue to remain at a record low, it’s a good opportunity to take precautions now so that you’re financially prepared for a sudden hike. Check out our tips for building a home loan buffer or have a quick read below.
How to protect yourself from rising interest rates:
Make extra repayments - While your interest rate remains low, re-evaluate your budget to make room for extra home loan repayments. This will come in handy if you ever need to take a repayment holiday or suffer from a sudden change in financial circumstance and need to redraw.
Refinance your loan - What better time to refinance than during a drop in interest rates? Check out our database for loans currently below the 3.50% mark.
Take out Mortgage Protection Insurance - Give your home extra security by taking out Mortgage Protection Insurance which will cover your home loan repayments if you fall ill or become unemployed.
Thinking it’s time to refinance? Check out Mozo’s home loan comparison to switch to a better deal today.