 Home owners smart buffer against rising rates
Many home owners have built up substantial savings within their home loans, due to low interest rates over the past few months.
Figures from the Bureau of Statistics and the Reserve Bank indicate that borrowers are making extra repayments on their mortgages.
This is positve news as the Reserve Bank begins lifting interest rates and banks raise home loan rates. Many house holds will have created a buffer against future rate rises.
While the total amount of outstanding housing debt is still growing - topping the $1000 billion mark in January - the rate at which people are making repayments is growing even faster. For every $1000 of debt held by households in August, $17 more was taken out. But a further $11 was repaid, meaning outstanding debt rose by only $6.
The data shows there has been an increased ability to pay off debt, thanks to interest rate reductions and borrowers being more careful about their personal debt levels.
Westpac agrees, saying that during the worst of the global economic crisis, many home owners were careful about debt.
And the National Australia Bank is in agreement, saying the ''vast majority'' of customers were ahead on repayments.
Mortgage experts have long urged home owners to look at their repayments and wherever possible, pay more than the minimum required, explaining that even modest extra repayments can save thousands of dollars in interest and years of a loan.
However, borrowers are urged to check their mortgage contracts for any penalty fees before increasing their rate of repayments.
With the official rate rising last Tuesday, then mortgage rates being raised a few days later, the upward cycle does seem to have started. And home owners who can afford to keep paying at the higher rate should continue to do so.
Any home owners struggling with increase interest rates and higher repayments are urged to seek financial advice straight away.
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