Stress testing a mortgage and mortgage life insurance

[JJJB]

1. At present mortgages are in the 5% range. Does anyone recommend a realistic percentage where interest rates on mortgages could rise to say in the next say 10 years? Is 7% about to be expected or could it ever reach say 10%?

 

2. Also what is the monthly cost of mortgage life insurance that pays your mortgage off in full the event the mortgagee dies?

 

3. One final question, what is the maximum after tax salary percentage that one would recommend using to pay down a monthly mortgage?

[Xenon4017]

1. At present mortgages are in the 5% range. Does anyone recommend a realistic percentage where interest rates on mortgages could rise to say in the next say 10 years? Is 7% about to be expected or could it ever reach say 10%?

 

 

 

I think 10 years is a bit too far. Look at what fixed rate deals there are. Their timespan represent how far into the future the banks are prepared to look. It's really anybodys guess, but I would say it's more likely that the average rate over the next 3 years will be higher than now. The sugar hit of "give us a rate cut" wears off pretty quick, and you can only cut so many times.

 

If the purpose of your post is to budget for a mortgage, maybe pay it down as if it were 8%, then you'll be ahead of the game with a good safety margin. The other thing to consider is, if rate do climb up to that amount, credit will become more expensive and this might put downward pressure on property prices.

[Guest]

Well it's been 15% in my lifetime so it's difficult to say - we're planning on a mortgage that is 50% of what the bank will offer us and investing the same amount again each month (with special deals like fixed rate you often can't 'overpay')

 

If you are taking a mortgage at the top end of affordability I would opt for a 5 year fixed rate and remove the stress.

 

As for life insurance that depends on too many factors - how much the mortgage is that you want to protect and your age for starters but it also is impacted by whether you smoke, previous medical history, occupation and so on. There are plenty of websites for on-line quotes - you can either get standard life insurance for the full amount of your mortgage or a reducing term so the amount of cover goes down as the outstanding mortgage does. If you are young I would go for the former and you can always top it up if you need more later on.

 

Personally I would recommend no more than a third of your income on a mortgage - anymore than that is considered 'mortgage stress'.

 

My mortgage is 12% and that feels like a very comfortable place to be - in Perth it was closer to 50%!

[Andrew from Vista Financial]

1. At present mortgages are in the 5% range. Does anyone recommend a realistic percentage where interest rates on mortgages could rise to say in the next say 10 years? Is 7% about to be expected or could it ever reach say 10%?

 

 

 

2. Also what is the monthly cost of mortgage life insurance that pays your mortgage off in full the event the mortgagee dies?

 

 

3. One final question, what is the maximum after tax salary percentage that one would recommend using to pay down a monthly mortgage?

 

 

 

Hello

 

1) This is any ones guess however the consensus for the short term at least is that they are not going to rise too drastically.

 

2) This would depend on a number of variables, for example age, amount required, male or female, smoker or non-smoker......

 

3) Since the title of this thread is stress testing a mortgage, see here http://andrewnorton.info/2007/07/12/how-stressed-are-households-with-mortgages/ it seems as though a figure of around 35% or more of income being used towards paying the mortgage is classed as mortgage stress.

 

 

Kind regards

 

Andy