A 2021 study by True Savings, a fintech company, found that more than 40% of Australian homeowners were facing challenges with home loan repayments and were at risk of suffering mortgage stress.
As of March 2021, thousands of homeowners were already falling behind on mortgage payments, risking repossession of their properties by their lenders. While due credit should be awarded to the global pandemic for the crisis, some of this could have been avoided with sufficient budgeting.
Budgeting does take the fun out of money. However, we believe it to be the first step towards healthy mortgage repayment and stress-free living. Take the sting out of unforeseen financial hurdles with the following budgeting ideas after for your first home loan.
Back to the Drawing Board
Before buying your first home, you probably spent so much time focusing on raising a deposit towards your first home loan. You may have overlooked the other expenses that come with owning a home. If you are coming from renting or moving into a bigger house, your monthly expenses are about to change. Now is the best time to rethink your monthly budget and better prepare yourself for predictable and unforeseen homeownership costs.
Below are some costs to consider in your budget. We have included some estimates where possible. If you are looking to calculate your monthly repayments, you can use this home loan repayment calculator.
Account for Home Loan Repayments, Maintenance, Upgrades, and Homeownership-Related Fees
Once your loan has been approved and you have moved into your new residence, the housing costs can start to add up pretty quickly. Your loan needs to be paid for, the lawn needs to be cut, the roof leaks need to be fixed, a broken window needs to be replaced, and you need to stay up-to-date with your homeowner’s association fees.
Furthermore, with Australia having gained its status as a nation of renovators, you are likely to spend a fair share on upgrades. We recommend you budget 1 – 2% of the value of your house every year towards maintenance, upgrades, and homeowner-related fees to avoid spending out of pocket on these expenses.
Consider Paying for Property Insurance
There are several types of insurance to consider after obtaining that home loan. The first is obvious. You will need a cushion against damages to your new property and this is where insurance on your property comes in handy.
Just this year in 2022, thousands of Australians have already lost their properties to floods Go back three years. You will recall that thousands of families were rendered homeless by the bushfires. Having your new property insured will allow you to get compensation in case of such losses.
While we are here, we would like to express our heartfelt sympathy for those who were displaced by the bushfires of 2019 and the floods of 2022.
Other Insurance Considerations to Safeguard Your Home Loan Repayments
So you have just borrowed over half a million dollars, or close, for a home loan and you plan to consistently repay this bit by bit for the next 30 years. But what if you suddenly got injured or became seriously ill and had to be out of work for a while? Or in the worst-case scenario, what if you were no longer there to fend for your family? What will happen to your family home? Who will be responsible for your home loan repayments when you are no longer able to pay?
Equipping yourself with disability and life coverages keeps you or your surviving dependents in good financial standing. Even when you are not able to generate income for your family. For your life assurance, a plan that covers at least your full mortgage is usually a good option.
Do Not Forget Your Other Life Goals
With the house you have just acquired, your retirement already looks promising. You are on the right course to not incur any rental expenses in your retirement. However, with all the costs that come with owning a house right now, your retirement plan may come as an afterthought. Remember to set aside some investments or savings so you do not retire broke.
Save For Unforeseen Circumstances
Chances are high that you had to dig into your life savings to cover the deposit of your home loan.
While you readjust your monthly budget, remember to replenish the savings you had before buying your home. You will need to be prepared for emergencies too. While at it, consider raising an emergency fund for life’s surprising circumstances that can threaten your financial health.
A good measure for an emergency fund is to set aside about 6 months’ worth of income.
Cut Costs Where You Can To Comfortably Accommodate Home Loan Repayments
Your new home budget might be getting a little tight at this point. Give yourself some breathing room by cancelling unnecessary streaming services or buying more generic products at the store. These small changes can improve your financial outlook in the short term and long term.
Achieving the Australian dream comes with great financial responsibilities over and above your home loan repayments. However, with good forethought and planning, managing your monthly expenses can be an easy walk in the park. While budgeting should start well before putting down payment for a new home, you are better late than never.
If you have are here looking for help with a home loan or refinancing, schedule a free and no-obligation chat with our mortgage advisors to get answers to your questions. We will help you get the best deal from our panel of over 35 banks.
Disclaimer: The information provided is general in nature and does not constitute financial advice. Please speak to us for recommendations on your individual circumstances and requirements.