Post to Facebook on 12/11/2018 at 5:00 PM
Commenting on “Housing slump set to be the largest in nearly 40 years”
http://www.theage.com.au/money/saving/financial-stress-on-the-rise-20180202-h0sqgy.html
The biggest financial stress for most householders is mortgage stress. Mortgage stress refers to when a home owner is paying over 30% of their income towards repayments on their home loan.
Unless you have were born with a silver spoon, inherited huge sum or have a big windfall, you are likely to borrow money to buy your own home or invest in real estate.
Benjamin Franklin supposedly once said, “If you fail to plan, you are planning to fail." Do people, including you, know how to plan to avoid mortgage stress?
I apologise if you have to hear this again. I am a pessimistic optimist. I also have declared that I am a problem solver / solution seeker. I look for the worst case scenario in a situation, find all probable and feasible solutions, and then move forward with confidence. I cannot be sure that that is no additional twist and turn after I started working on the problem, but then I know from my earlier preparation and planning, I can work out a way to overcome the hurdles.
It is obvious important to treat every mortgage as a business concern - you cannot afford to make losses, so much so that you have to default and lose all you hard earned money. In addition, you may also lose your marriage and family, and worst of all, your health.
Basic accounting equation on Profit and Loss is (Income minus Cost minus Expenses), giving either profit or loss. From the equation, if you can increase your income, and reduce the Cost and Expenses, then you should be making a profit. This is to be ploughed back to increase your mortgage repayment.
How much are you going to borrow? How much deposit or initial amount you are contributing? I tend to borrow more than I need, and ask for the longest repayment term. It is important to know the penalty that may incur if you repay your loan earlier; if the amount is substantial, then the loan amount needs to be adjusted down.
The logic behind such strategy is that I prepare for any initial surprise outlay that required immediate attention, and stretching the repayment term reduces the monthly repayment.
Despite all the precautions taken, surprises do tend to pop up when you first bought the property. If you have not owned a property before, you soon realise you have to pay building insurance, Council rates, water rates, maintenance, lawn mowing, etc. You may need another car, because you or your spouse cannot take public transport to the usual places - work, school, children after school activities, shops, church, etc. The cost of owning and running another car reduce your bottom line figure.
What are the chances you get retrenched? The economy is not going gang busting at present, despite all the make-belief employment data from ABS. You need to keep in mind that "a person is considered employed if he/she is employed for 1 hour during the surveyed period." There are many under-employed people out there who like to work more hours, but the hours are not there.
Loss of employment and fluctuation employed hours affects the income in the equation. It is important and a good habit to build up the finance from early days. My wife and I did work more than one job during the early days. Besides her full time job, she also worked in a hospital kitchen on weekends. We also sold fried rice at Council neighbourhood Sunday market.
As for cutting the expenses, I learned the various skills in maintaining and renovating the house, including landscaping and making the kitchen cabinets from scratch. We used secondhand, pass-me-down household items, until such time we could "afford" to buy new one. We also shared one car, and learned to cook. Dining out was a luxury, and holiday travel was on our wish list only.
Did we suffer from mortgage stress? I can honestly tell you, we did not. We bought within our means, we increased our income, and reduced our expenses. The cost remained static during the course of the loan. We also made sure we kept 2 months of reserved months as emergency fund.
In order to avoid financial / mortgage stress, you must expect the unexpected such as:
To reduce financial stress, I suggest the following:
What do you need to do if you are in mortgage stress now?
Thank you for reading.
Commenting on “Housing slump set to be the largest in nearly 40 years”
http://www.theage.com.au/money/saving/financial-stress-on-the-rise-20180202-h0sqgy.html
The biggest financial stress for most householders is mortgage stress. Mortgage stress refers to when a home owner is paying over 30% of their income towards repayments on their home loan.
- I summarise the statistics from the linked article
- 7% of householders could not always pay their mortgage on time
- 7% could not pay their rent on time
- 70% or more of renters are spending 30% or more of their disposable income on rent
- 46% of mortgagees put 30% or more of their disposable income towards mortgage repayment
- 32,000 Australians went bankrupt in 2017
Unless you have were born with a silver spoon, inherited huge sum or have a big windfall, you are likely to borrow money to buy your own home or invest in real estate.
Benjamin Franklin supposedly once said, “If you fail to plan, you are planning to fail." Do people, including you, know how to plan to avoid mortgage stress?
I apologise if you have to hear this again. I am a pessimistic optimist. I also have declared that I am a problem solver / solution seeker. I look for the worst case scenario in a situation, find all probable and feasible solutions, and then move forward with confidence. I cannot be sure that that is no additional twist and turn after I started working on the problem, but then I know from my earlier preparation and planning, I can work out a way to overcome the hurdles.
It is obvious important to treat every mortgage as a business concern - you cannot afford to make losses, so much so that you have to default and lose all you hard earned money. In addition, you may also lose your marriage and family, and worst of all, your health.
Basic accounting equation on Profit and Loss is (Income minus Cost minus Expenses), giving either profit or loss. From the equation, if you can increase your income, and reduce the Cost and Expenses, then you should be making a profit. This is to be ploughed back to increase your mortgage repayment.
How much are you going to borrow? How much deposit or initial amount you are contributing? I tend to borrow more than I need, and ask for the longest repayment term. It is important to know the penalty that may incur if you repay your loan earlier; if the amount is substantial, then the loan amount needs to be adjusted down.
The logic behind such strategy is that I prepare for any initial surprise outlay that required immediate attention, and stretching the repayment term reduces the monthly repayment.
Despite all the precautions taken, surprises do tend to pop up when you first bought the property. If you have not owned a property before, you soon realise you have to pay building insurance, Council rates, water rates, maintenance, lawn mowing, etc. You may need another car, because you or your spouse cannot take public transport to the usual places - work, school, children after school activities, shops, church, etc. The cost of owning and running another car reduce your bottom line figure.
What are the chances you get retrenched? The economy is not going gang busting at present, despite all the make-belief employment data from ABS. You need to keep in mind that "a person is considered employed if he/she is employed for 1 hour during the surveyed period." There are many under-employed people out there who like to work more hours, but the hours are not there.
Loss of employment and fluctuation employed hours affects the income in the equation. It is important and a good habit to build up the finance from early days. My wife and I did work more than one job during the early days. Besides her full time job, she also worked in a hospital kitchen on weekends. We also sold fried rice at Council neighbourhood Sunday market.
As for cutting the expenses, I learned the various skills in maintaining and renovating the house, including landscaping and making the kitchen cabinets from scratch. We used secondhand, pass-me-down household items, until such time we could "afford" to buy new one. We also shared one car, and learned to cook. Dining out was a luxury, and holiday travel was on our wish list only.
Did we suffer from mortgage stress? I can honestly tell you, we did not. We bought within our means, we increased our income, and reduced our expenses. The cost remained static during the course of the loan. We also made sure we kept 2 months of reserved months as emergency fund.
In order to avoid financial / mortgage stress, you must expect the unexpected such as:
- A hike in interest rates
- Losing your job
- Experiencing health problems
- Having a child
- Any other major expenditure
To reduce financial stress, I suggest the following:
- Cut out eating out or takeaways
- Opt for groceries in bulk, or shop for discount items
- Quit smoking
- Quit coffee or make / brew your own
- Reduce utility bill, wear warm clothing instead of relaying on heating
What do you need to do if you are in mortgage stress now?
- Do not miss any repayment - No lender will extend credit, try borrowing from family and friends
- Discuss with the lender for assistance
- Request to reconfigure your payment or lengthen the loan period
- Look at refinancing - Talk to another lender for better deal
- Move your loan over to an interest-only loan. This may be not viable because he interest is much higher that principal and interest loan
Thank you for reading.
