{"id":7658,"date":"2016-04-20T01:00:00","date_gmt":"2016-04-19T15:00:00","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=7658"},"modified":"2016-04-20T01:00:00","modified_gmt":"2016-04-19T15:00:00","slug":"with-low-interest-rates-and-burgeoning-property-prices-the-result-has-been-that-we-are-borrowing-more","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/with-low-interest-rates-and-burgeoning-property-prices-the-result-has-been-that-we-are-borrowing-more\/","title":{"rendered":"Why we are borrowing more"},"content":{"rendered":"

 
\nWith low interest rates and burgeoning property prices, the result has been that we are borrowing more.\u00a0 Bessie Hassan<\/strong><\/a> sees this as a big problem.
\nTranscript:<\/strong>
\nKevin:<\/b>\u00a0 Consumer advocate Bessie Hassan from Finder.com.au joins me to talk about an alarming piece of research that\u2019s come out that talks about how Australians are borrowing more in their housing debt. No doubt this is on the back of cheaper home loans.
\nBessie, this is a bit of a concern, isn\u2019t it?
\nBessie:<\/b>\u00a0 It is a bit of a concern. We\u2019re seeing people overextending themselves, actually. With interest rates at an all-time low, people are perhaps getting a little carried away and taking out more than they can afford in the long run. The key here is to always factor in a buffer. We always recommend a buffer of 2% to 3% to allow for any future rate rises if and when they do happen.
\nKevin<\/b>:\u00a0 Yes. We\u2019ll talk more about that buffer in a moment, because I think that\u2019s the key point we want to get through in this message. But I see here that housing debt per Australian adult has actually doubled over the last 11 years, and when you think about property prices, if you look at what\u2019s happened to property, it\u2019s more than doubled over that same period, though, hasn\u2019t it?
\nBessie<\/b>:\u00a0 That\u2019s correct. Increasing property prices have pushed up loan sizes, but this is growing much faster than inflation. Inflation would have only increased by about 34% in the same 11-year period. Instead we\u2019ve seen property skyrocket in value by a whopping 136%. Now that\u2019s particularly property debt that I\u2019m referring to.
\nKevin<\/b>:\u00a0 Yes. We want to get some tips here on managing our debt a lot better, but you mentioned there about the buffer, and I think this is a key thing. Explain to me how that buffer works and how we can factor that into our borrowing.
\nBessie<\/b>:\u00a0 Absolutely. With interest rates at historic lows at the moment, borrowers really do need to be cautious. Take into account that while interest rates are super low at this stage, they are probably going to rise, and all signs are pointing to a rate rise in the future. This means that during the life of your mortgage, which is usually a 30-year mortgage, you will probably have to encounter at least a few rate rises.
\nWith that in mind, you should have a buffer of 2% to 3%. So if rates are currently hovering around the 5% mark, when you are doing your finances, when you are taking out that mortgage, ensure that you would be able to pay it back if rates were to be around the 7% or 8% mark.
\nKevin<\/b>:\u00a0 Yes, and when times are good, too, you should be looking at things like lump-sum payments, making fortnightly or even weekly payments, to get the principal down as fast as you can.
\nBessie<\/b>:\u00a0 Exactly. Simply put, a decrease in how much you owe is probably the simplest way to cut down risk.
\nKevin<\/b>:\u00a0 Yes.
\nBessie<\/b>:\u00a0 You can pay off your mortgage sooner by doing things such as that \u2013 making fortnightly or weekly repayments or lump-sum repayments. Also having an offset account is a great option for those looking to repay their loan sooner. It\u2019s like a regular transaction account but directly linked to your mortgage account, of course, which offsets the amount of interest that you\u2019re paying against the overall loan.
\nAlso, small change counts. So if you do come across that bonus or unexpected funds coming your way, put them on to the mortgage. It might look like a small amount, but in theory, anything that you can put towards it now will help to alleviate any financial pressures down the track when the rates do go up
\nKevin<\/b>:\u00a0 Yes. I mentioned, too, earlier making fortnightly or even weekly payments. You don\u2019t have to be that extensive if you can\u2019t afford it. Even rounding it up \u2013 and you were hinting there at rounding up and putting in lump sums \u2013 but even if you can only make an extra $10, $15, or even $20 a week as an additional payment, it\u2019s all going to help.
\nBessie<\/b>:\u00a0 That\u2019s right. Over the life of your loan, you probably could save thousands of dollars. Take fortnightly for example, if you do make fortnightly payments you end up making that one additional payment per year, which helps to decrease your balance, which then reduces the amount of the interest that can be charged to your loan account. So it really is a win-win. By doing so, as well, you can probably cut down your loan term<\/i> by an average of five or six years.
\nKevin<\/b>:\u00a0 Consumer advocate from Finder.com.au, Bessie Hassan. Thanks for talking to us, Bessie.
\nBessie<\/b>:\u00a0 Thank you.
\n <\/p>\n","protected":false},"excerpt":{"rendered":"

  With low interest rates and burgeoning property prices, the result has been that we are borrowing more.\u00a0 Bessie Hassan sees this as a big problem. Transcript: Kevin:\u00a0 Consumer advocate Bessie Hassan from Finder.com.au joins me to talk about an alarming piece of research that\u2019s…<\/p>\n","protected":false},"author":176692471,"featured_media":7334,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[32,34,10,11,13],"tags":[103],"class_list":["post-7658","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-buying-a-property-topic","category-finance-topic","category-kevin-turner-sponsored-channels","category-kevin-update","category-latest-story","tag-podcasts"],"yoast_head":"\nWhy we are borrowing more - Realty Talk<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/channels.realty.com.au\/realtytalk\/with-low-interest-rates-and-burgeoning-property-prices-the-result-has-been-that-we-are-borrowing-more\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Why we are borrowing more - Realty Talk\" \/>\n<meta property=\"og:description\" content=\"  With low interest rates and burgeoning property prices, the result has been that we are borrowing more.\u00a0 Bessie Hassan sees this as a big problem. 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