Alex Brooks - Mortgage Stressbusters

Contents

First published 2009 by Wrightbooks

an imprint of John Wiley & Sons Australia, Ltd

42 McDougall Street, Milton Qld 4064

Office also in Melbourne

Typeset in Gill Sans 10.5/13.5pt

Alex Brooks 2009

The moral rights of the author have been asserted

National Library of Australia Cataloguing-in-Publication data:

Author: Brooks, Alex.

Title: Mortgage stressbusters / Alex Brooks.

ISBN: 9780731409877 (pbk)

Notes: Includes index.

Subjects: Mortgage loans Australia.

Housing Australia Finance.

Dewey Number: 332.7220994

All rights reserved. Except as permitted under the Australian Copyright Act 1968 (for example, a fair dealing for the purposes of study, research, criticism or review), no part of this book may be reproduced, stored in a retrieval system, communicated or transmitted in any form or by any means without prior written permission. All inquiries should be made to the publisher at the address above.

Cover design by Popomo

Cover image iStockphoto/lan Jeffery

Disclaimer

The material in this publication is of the nature of general comment only, and does not represent professional advice. It is not intended to provide specific guidance for particular circumstances and it should not be relied on as the basis for any decision to take action or not take action on any matter which it covers. Readers should obtain professional advice where appropriate, before making any such decision. To the maximum extent permitted by law, the author and publisher disclaim all responsibility and liability to any person, arising directly or indirectly from any person taking or not taking action based upon the information in this publication.

For my boys,

MC65, Louis & Hugo

About the author

Alex Brooks spends a lot of time at home writing about other peoples houses, property and how we live. She has written two other books under the name of Alex May Planning Your Perfect Home Renovation and The Sydney Morning Herald Good Suburbs Guide and is currently working on a book about green home renovation. She writes The Green House column for House & Garden magazine, blogs for The Sydney Morning Herald and contributes regularly to G magazine, Sunday Life, Womans Day, The Sydney Morning Herald and Sun-Herald. For more information, head to her websites < www.alexbrooks.com.au > and < www.renovationplanning.com.au >.

Introduction

Worrying about your mortgage is nothing new. But throw in economic uncertainty, stagnating or falling property prices and changing credit availability, and there is a giant stress ball potentially waiting to explode in overstretched households across the country. In fact, its been predicted that there could be more than one million Australian households in mortgage stress by the time this book hits the shelves in March 2009.

What exactly is mortgage stress? The official edict is that mortgage stress occurs when a household spends more than one-third of net income on mortgage payments. Of course, the reality is not as simple as that. A household with low income and a reasonable mortgage could be better off than an affluent household that is highly leveraged with a big mortgage on the principal home, a holiday home and even bigger margin calls against a portfolio of rapidly falling stocks and shares.

Mortgage stress is not simply feeling over-anxious about the size of that debt on your bank statement each month. Scrimping on food, family and fun can be part and parcel of having a mortgage even for people on great salaries but real mortgage stress leaves people vulnerable to the slightest jitter in the economy. It means there is no margin for dastardly debt disturbances like inflation, unemployment, interest rate rises or house price falls. Mortgage stress preys upon first-homebuyers and over-leveraged near-retirees who may have spent the equity in their homes by investing in residential property.

Has the great Australian dream of homeownership turned into a big fat mortgage millstone? The boom in property prices over the past decade was nothing short of astounding, with many homes doubling and even tripling in price over a period of less than 10 years. This huge gravy train led to the idea that any property is a great investment. At the time of writing, however, the Australian Bureau of Statistics has registered property price falls across Australia, and further falls for Australian capital cities are predicted for 2009. Those price falls have already occurred in many places and not just for struggle-street homes in the outer suburbs but also for multimillion-dollar properties in affluent areas.

Homeowners who had a stake in property prior to markets peaking will probably be okay. But what of those people who bought for the first time, or who burned up their existing equity by investing in property or paying off their credit card debt? Housing affordability has declined rapidly since 2003 and the size of the average new mortgage has expanded, with a large proportion of households paying more than $3000 a month to feed the beast.

The word mortgage has its origins in the old European languages, with mort literally meaning dead and gage meaning a pledge a pledge to the death! Thats hardly an encouraging thought, but the property and financing secrets in Mortgage Stressbusters will provide you with plenty of inspiration, helping you to save time, money and heartache over debt secured by housing.

I hope this book is an easy-to-read tool that can help your household tame its mortgage monster or at least stop it keeping you awake at night. Its been written to appeal to all homeowners, regardless of whether your mortgage is small, ginormous or totally out of control. It unlocks some of the secrets of successfully owning a property and securing a mortgage that will march you safely on the road to security which, after all, is probably why you bought a house in the first place.

As the old clich goes: debt can be a wonderful servant but its not so much fun as a master. So read the book, master your mortgage and sleep well.

Section I

Getting on the mortgage merry-go-round

Will your mortgage be a millstone or the making of a secure future in a home of your own? Before getting on the merry-go-round of monthly payments that seem to drag on for the term of your natural life, read on to uncover some of the myths and economic truths about homeownership (and the accompanying debt that goes with it). Whether you are a first-homebuyer, refinancing or buying your second or third property, this chapter outlines the ins and outs of embarking on the mortgage journey.

While its true that homeownership and a mortgage can bring plenty of benefits including economic advantages its also fair to say that the costs of servicing the debt, maintaining the home and paying all those bills such as rates and insurance can make a real dent in your back pocket. For some people, renting might offer the most secure financial future; for others, the risks of large interest payments and ongoing costs are worth it as they build equity and embrace the forced savings that a mortgage imposes upon them.

If you do choose to go down the property-owning path, one word youll need to become familiar with is the B word budgeting. The governments newly improved first-homeowners grant which at the time of publishing was only available until 30 June 2009 may boost opportunities for buyers, but its important to note that the general state of the Australian property market could be volatile in the short to medium term. Plenty of property experts are predicting small price falls in some areas, and modest price growth in others. Are you prepared to take on a mortgage if the capital value of your home could fall in the medium term?