Debt and retirement worries are high
Australians are in a rush to pay off their home loans, with almost nine out of 10 mortgage holders trying to get out of debt sooner, while three in five Aussies are worried they won’t have enough money in retirement.
According to Mortgage Choice’s Diversified survey, 65 per cent of Australians believe they won’t have the funds they need come retirement, and 54 per cent won’t give their retirement serious thought until they’re 50 or older.
Mortgage Choice chief executive officer John Flavell says: “Many don’t realise that 50 is simply too old to start saving and planning for retirement. In reality, people should start their retirement planning much earlier in life.”
According to the Association of Superannuation Funds of Australia, couples will need approximately $640,000 in savings, while singles will need approximately $545,000 in order to live a comfortable lifestyle in retirement.
Little wonder, then, that it’s so important to start the planning process early, Flavell says.
“Furthermore, most people don’t realise that they may head into retirement with debt hanging over their heads, which can have a significant impact on their savings and cash flow.
“Over the coming years, statistics suggest that many Australians will reach retirement age and still have a mortgage. Soaring property prices combined with the fact that people are taking out home loans later in life, will ensure many still have debt in their twilight years.”
Meanwhile, a survey by comparison website finder.com.au found 89 per cent of borrowers have tried to pay down their mortgage sooner, with the majority (60 per cent) of homeowners opting to make extra repayments.
Forty per cent of borrowers commit to making more frequent payments either fortnightly or weekly, instead of monthly.
Rounding out the top three ways borrowers fast-track their home loan repayments is using a linked offset account, with 34 per cent opting for this strategy.
Women are marginally more likely (90 per cent) than men (88 per cent) to pay down their mortgage faster, while baby boomers (18 per cent) are twice as likely as generation X (9 per cent) to have never tried paying off their mortgage faster.
Bessie Hassan, money expert at finder.com.au, says borrowers feel burdened by carrying around a mortgage for 30 years and are going to great lengths to break free sooner, adding that it’s promising that borrowers have bought within their means and are taking initiative by getting ahead on their mortgage debt.
“Fast-tracking your mortgage repayments could save you thousands of dollars in interest over the life of a loan, and a good way to do this is to make more frequent periodic repayments,” she says.
“If you had a $367,600 mortgage (the average national loan size) at 4.73 per cent interest (the average standard variable rate) your monthly repayments would be $1,913.15 and total cost of the loan would be $688,732.79.
“However, if you switched to fortnightly repayments of $956.57, you would save $56,654.18 in interest and you’d reduce your loan term by four years and seven months, as you end up making one additional repayment each year.”
It does need to become a habit rather than a once-off contribution, she points out, as consistency is key.
Other tactics employed by savvy homeowners included negotiating a cheaper interest rate with an existing lender (5 per cent) and refinancing to a new lender that offers a lower rate or other money-savings features (5 per cent).
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