New home buyers beware
By Susan Edmunds
5:30 AM Sunday Jun 10, 2012
Photo / Thinkstock
First-home buyers are being lured into the property market by interest rates that in some cases make it cheaper to own than rent.
But they come with a warning. The Commission for Financial Literacy and Retirement Income is worried that some borrowers - especially first-time buyers and novice property investors - are biting off more than they can chew.
They are also vulnerable to fluctuations in the property market, interest-rate rises or changes to their personal circumstances.
Retirement Commissioner Diana Crossan said people needed to be careful, and agreed that interest rate changes could make a big difference. "The banks want people to take on loans so they are offering large amounts," Crossan said. "It seems like common sense but people need to think 'what happens if' ..."
A $250,000 mortgage on a rate of 5.5 per cent results in payments of $793 a fortnight. But if interest rates return to the historically average 7.5 per cent, the fortnightly repayment becomes $928. The warnings come as record levels of mortgagee sales have been reported.
Crossan said it seemed a lot of people were not giving enough thought to the future. "It's hard for people to remember when interest rates were at 15 or 20 per cent. But people who took mortgages at that time will tell you it can happen."
Other people were increasing their mortgage repayments to pay off their home loans faster, she said. She warned that this should be done in such a way that if circumstances changed - if an income was lost or interest rates rose - repayments could be dropped again.
By Susan Edmunds
5:30 AM Sunday Jun 10, 2012
Photo / Thinkstock
First-home buyers are being lured into the property market by interest rates that in some cases make it cheaper to own than rent.
But they come with a warning. The Commission for Financial Literacy and Retirement Income is worried that some borrowers - especially first-time buyers and novice property investors - are biting off more than they can chew.
They are also vulnerable to fluctuations in the property market, interest-rate rises or changes to their personal circumstances.
Retirement Commissioner Diana Crossan said people needed to be careful, and agreed that interest rate changes could make a big difference. "The banks want people to take on loans so they are offering large amounts," Crossan said. "It seems like common sense but people need to think 'what happens if' ..."
A $250,000 mortgage on a rate of 5.5 per cent results in payments of $793 a fortnight. But if interest rates return to the historically average 7.5 per cent, the fortnightly repayment becomes $928. The warnings come as record levels of mortgagee sales have been reported.
Crossan said it seemed a lot of people were not giving enough thought to the future. "It's hard for people to remember when interest rates were at 15 or 20 per cent. But people who took mortgages at that time will tell you it can happen."
Other people were increasing their mortgage repayments to pay off their home loans faster, she said. She warned that this should be done in such a way that if circumstances changed - if an income was lost or interest rates rose - repayments could be dropped again.
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