Aussies’ desperate mortgage act amid cost-of-living crisis

Australians are extending their mortgages amid the cost-of-living crisis, taking on more debt in the long run.

New research by Finder reveals 13 per cent of people surveyed have extended the length of their home loan in the past 12 months.

The average loan size in Australia is $625,050, according to Australian Bureau of Statistics data.

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Which means the average mortgagee’s repayments have risen more than $21,000 a year on average since April 2022 when rates started to rise, Finder’s research fshows.

Of those mortgage holders surveyed by Finder, 7 per cent have extended the term of their loan by less than five years and 6 per cent have added five years or more.

More than a third of those surveyed through Finder’s Consumer Sentiment Tracker said they struggled to pay their home loan in June, up from 26 per cent in June 2022.

This pressure has left borrowers feeling the need to take drastic measures, Finder home loans expert Richard Whitten said.

“While extending the length of your home loan will lower your monthly repayments in the short term, it’s probably going to cost you a fortune over the long run,” he said.

“The average Aussie household has much less disposable income compared with a few years ago.

“Many are desperate for ways to slash their monthly outgoings, even if it means sacrificing their long-term financial health.”

Even a small increase in loan term can drastically alter the overall cost, Whitten said.

“Since lenders calculate interest daily based on the outstanding balance of a loan, over time that can add up to a significant extra burden in interest,” he said.

With a competitive variable rate of 5.99 per cent, paying the average $625,050 loan off over 30 years would cost a typical homeowner $722,602 in interest.

Just pushing that out by five years would add $147,457 extra to the total interest over the life of the loan, Finder’s analysis revealed.

Pay off more when you can

If you have extended your loan, you should consider paying it down in higher amounts when possible later on, Whitten said.

“When you’re stretched, you need to lower repayments straight away,” he said.

“But if you find yourself in a position to do so down the track, consider putting extra money into your home loan to make up for the costs that come with extending your loan.

“Most variable mortgages have a redraw facility, so homeowners can make extra repayments and still get access to those funds in an emergency.

“If your loan has an offset account, it’s even better.

“You can park any extra savings there, get the full benefit of offsetting the interest charges and have complete access to the money when you need it.”

Rising house prices

Rising mortgage costs come with rising house prices, with CoreLogic revealing the median house price nationally is up by 8 per cent to almost $800,000.

Median values are up regionally by 7 per cent, and by 8.3 per cent on average in capital cities.

However, prices in Hobart were down in the last quarter and annually, -0.3 per cent and -0.1 per cent respectively.

Melbourne prices have taken a hit in the last month and quarter, down by 0.6 per cent and 0.2 per cent respectively.

“The persistent growth comes despite an array of downside risks including high rates, cost-of-living pressures, affordability challenges and tight credit policy,” CoreLogic research director Tim Lawless said.

“The housing market resilience comes back to tight supply levels, which are keeping upwards pressure on values.”