Stressed Australians add years of debt to make housing payments

Stressed mortgage holders are adding extra years and extra debt to their loans as they struggle to make monthly payments, new research shows.

Comparison website Discoverer According to a survey of just over 1,000 people, 13 per cent of mortgage holders had extended their home loan in the last 12 months in order to reduce their payments.

This equates to 429,000 people across Australia.

Mortgage holders are adding years of debt to their home loans in order to make payments. (Getty)

Households paying the current average loan have seen their mortgage payments rise by more than $21,000 a year on average since April 2022, when the Reserve Bank of Australia began raising interest rates.

Finder’s research found that seven per cent of mortgage holders (equivalent to 231,000 borrowers) have extended their loan term to less than five years.

But six percent have added five years or more to their mortgage, meaning interest implications could add up to thousands of dollars over the life of the loan.

“While extending the length of your home loan will reduce your monthly payments in the short term, it will probably cost you a fortune in the long term,” said Richard Whitten, Finder’s home loan expert.

“The average Australian household has much less disposable income compared to a few years ago.

“Many are desperate to find ways to cut their monthly expenses, even if it means sacrificing their long-term financial health.”

Whitten said even a small increase in the length of a loan could make big differences in interest rates over the life of a mortgage loan.

A for sale sign is seen in front of a house in Canberra, Tuesday June 9, 2015. (AAP Image/Lukas Coch) CANNOT ARCHIVE
The average home loan in Australia is over $600,000. (AAP)

The average loan size in Australia is $625,050, according to ABS data.

Finder’s analysis showed that paying off a loan of that size over 30 years would cost a typical homeowner $722,602 in interest based on a competitive variable rate of 5.99 percent.

Extending this term to 35 years would add a whopping $147,457 extra to the total interest over the life of the loan.

For a borrower with a million-dollar mortgage, interest skyrockets from $1,156,066 over the life of a 30-year loan to $1,391,980 over 35 years.

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Whitten encouraged those who extended their loans to look for ways to pay off their debts faster when they can afford it.

“When you’re maxed out, you need to reduce payments immediately,” he said.

“But if you find yourself in a position to do so in the future, consider investing extra money into your home loan to offset the costs of extending your loan.

“Most variable mortgages have a repayment mechanism, so homeowners can make additional payments and still have access to those funds in an emergency.

“If your loan has an offset account, it’s even better. You can put your extra savings there, get the full benefit of offsetting interest charges and have full access to the money when you need it.”

More than a third (34 per cent) of Australians say they struggled to repay their home loan in June, up from 26 per cent in June 2022, according to data from Finder’s Consumer Sentiment Tracker.

The information provided on this website is of a general nature and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website, you should consider the suitability of the information in relation to your objectives, financial situation and needs.

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