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Reacting to rising interest rates

Rising interest rates and skyrocketing utility costs mean that many people are having problems balancing their budget.
Rising interest rates and skyrocketing utility costs mean that many people are having problems balancing their budget.

RISING interest rates and skyrocketing utility costs mean that many people are having problems balancing their budget.  A recent email is typical. 

“My wife and I have a $370,000 mortgage on a house worth $500,000.  We have credit card and other debts of $10,000 and are battling to pay our bills.  My wife is returning to full time study and the family income will then reduce to $4000 clear a month.  The house would rent at $500 a week – should we rent it out or try to keep it?”

I pointed out that it was important to try to keep the property because they would lose at least $50,000 if they sold it and then eventually bought another one.  It’s reasonable to assume their income will increase again in the future when the wife returns to work so what they really want is a strategy that will enable them to get by for the next two or three years. 

Ideally they should negotiate with the lender to consolidate the personal loans with the home loan and then have the total loan on interest only, or at least at 30 year term, for the next three years.  Total payments would be $520 a week which they should be able to afford.  

Of course this strategy is based on the premise they will chop up their credit cards and not take on any more personal debt.  Alternatively they could put a tenant in the house and find cheap rent elsewhere.  They can be absent from the home for up to six years without losing the capital gains tax exemption.


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