Unsurprisingly, self-employed Australians are feeling the relentless squeeze of rising cost-of-living pressures, which threaten their financial stability and business survival. The relentless burdens are skyrocketing utilities and energy bills, soaring food and grocery prices, and escalating healthcare costs.
The ever-increasing education and childcare expenses add to the strain, while rampant inflation drives up prices across all sectors, eroding their hard-earned income. On top of all this is the burden of managing their mortgage.
Unlike salaried workers, self-employed individuals will likely face more unpredictable cash flows, complicating consistent mortgage repayments. The pressure of maintaining home ownership is compounded by uncertain interest rate movements, with many business owners being forced to cut back on essential expenses and business investments to keep up with housing costs, threatening both personal financial stability and business viability.
But there is hope. As the home for the self-employed, we have put together some strategies to help our self-employed heroes stay financially afloat while minimising the squeeze of a debilitating cash-flow burden.
Refinance Or Extend Your Home Loan
One effective way to reduce mortgage stress is by refinancing or extending your loan term. When you refinance or extend your loan, you can restart the term to the maximum, typically 30 years. This means your loan repayments are spread over a longer period, significantly reducing your monthly payments.
While this approach may mean paying more interest over the life of the loan, it provides immediate relief in high-rate or uncertain-rate environments. Additionally, with variable loans, you can make extra payments whenever possible, allowing you to shorten the loan term when your financial situation improves.
Leverage Extra Repayments
Many borrowers have made extra payments on their loans yet still struggle with high repayments. This is because the repayments are based on the original loan amount, not the outstanding balance. If you need additional funds to manage cash flow, consider moving the extra payments to your offset account. This way, you can access these funds when cash is tight.
Alternatively, ask us how to recalculate your loan payments based on the new, lower outstanding balance. This will reduce your loan repayments but keep some funds as a buffer for emergencies.
Consider Borrowing More
While it may seem counterintuitive to borrow more money when finances are tight, it can be a practical solution. Sometimes, lenders may be willing to lend you more than you think. Borrowing extra as a buffer and transferring it into your offset account means you won’t pay extra interest on these funds. Although your minimum payments might increase, extending the loan term can offset this rise, providing a safety net for unexpected expenses.
Consolidate Your Debt
Debt consolidation is another strategy to consider. Home loan rates are generally lower than other forms of debt because they are secured by a strong asset and spread over a longer term. Consolidating high-interest debts like personal loans, car loans, or long-term credit card debt into your home loan can significantly reduce your monthly outgoings. In addition, the self-employed can refinance a home loan to pay off ATO debt to simplify financial management and make the payment burden far more manageable.
Maximise Tax Returns
Don’t overlook the potential for tax refunds. Ensure you are up-to-date with your tax returns, as most PAYG income earners are eligible for some form of refund. Consulting with your accountant can help you find deductions and secure extra funds to ease your short-term financial burden.
Review liabilities
Review your liabilities and the competitiveness of your current loans regularly. At Rate Money, we offer access to a broad range of lending options, some of which you might not be aware of. These alternatives might offer better rates or terms to alleviate your financial stress further.
These tips are not necessarily about paying off a loan faster but reducing monthly outgoings and cash flow burden in the current economic environment. Most loans are variable, meaning it pays to pay extra and reduce the loan term when circumstances improve. By refinancing, leveraging extra payments, considering borrowing more, consolidating debt, maximising tax returns, and reviewing liabilities, self-employed Australians can navigate these current financial challenges and avoid or minimise their mortgage stress.
As always, seek professional help to determine whether a loan product is right for you. For personal advice, consult with an accountant or financial advisor.
