Negative Equity on your home loan

Australia has enjoyed a good run in economic times, employment is at a 30 year low and wages are increasing because employers want to keep there good staff. As a result Australians can afford more when buying homes and the increased competition in the housing sector has lead to increases in the price of houses.All these factors have lead to a large inflation figure, which the Reserve Bank of Australia is trying to stop. So to combat inflation the RBA has increased interest rates to curb inflation by making people spend less since borrowing money now costs more.

Australians who have bought their homes in the last year are finding their biggest investment; their homes; values dropping because the demand to buy houses has reduced since it costs more to service a home loan. If your home is now worth less that what you borrowed, you find yourself in a negative equity situation.

If you sold your home now the value you would receive would not cover the original loan you took to buy your home if you borrowed 100% of the homes value. If you are spending more that 30% of your take home income on your mortgage, you are classed as feeling mortgage stress. If you are having trouble meeting your repayments as a result of the latest interest rate rises you have to think carefully about your options.

If you can manage your loan and are willing to ride out this temporary reduction in house prices, your best bet is to stay in your home and wait for the equity to rise to the same level as what you borrowed, if you want to move at all, otherwise your homes value will increase in the long run.

If you cant service your loan at the increased interest rate your options are to either refinance and readjust the term and/or rate of your home loan or sell at a loss and repay the difference to your mortgage lender over time with a personal loan. This would not be a favourable bit it is better than not meeting your repayments and face a forced sale or even bankruptcy.

If you are struggling to keep up with your mortgage, talk to home loan lenders and discuss options to help you through your situation.