Despite record low interest rates, more and more homeowners are struggling to meet their home loan repayments and are experiencing “mortgage stress”. Even the slightest increase in interest rates could leave these homeowners vulnerable and unable to repay their mortgage. Let’s take a look at what “mortgage stress” is and how you as a homeowner can deal with it.
What is mortgage stress?
It’s a growing concern in both Australia and New Zealand: The rise of “mortgage stress”. Mortgage stress, otherwise known as “home buyer stress”, refers to a homeowner paying 30% or more of their income towards repayments on their home loan.
The added pressure of consumer debt – credit cards, hire purchase or car loans – combined with factors beyond their control – a rise in interest rates, depressed economic conditions, job loss or unemployment, or a sluggish property market – can lead to mortgage stress.
How do I avoid mortgage stress?
Avoiding mortgage stress takes careful planning. Here are some of the ways you can avoid getting into this stressful situation.
- Buy a home that you can realistically afford, even with a rise in interest rates. Use online mortgage calculators to determine what you’d be paying at various interest rate levels.
- Plan ahead with an emergency fund, a savings account that covers 3 to 6 months of living expenses to see you through those unexpected, expensive times.
- Avoid spending beyond your means; that might mean putting off buying a new car for a year or two, or not going on that international holiday. Be realistic with your spending.
How can I manage mortgage stress?
The good news is, there are ways you can manage mortgage stress. Firstly, if you are struggling to meet your mortgage repayments, it’s vital you talk to your lender. Your lender may be able to work with you on a repayment plan or allow you to take a repayment holiday to give you time to get back on track.
Then, set yourself a budget each month and be strict about sticking to it. Understanding what you can and can’t afford can help you to cut down on unnecessary spending. When times are good, try making extra repayments to pay off your home loan faster. And be realistic about what would happen if interest rates were to rise – ensure you haven’t overcommitted yourself to a mortgage you simply can’t afford.
Managing your finances
If you are looking to buy a new home, make sure you don’t pay more for your mortgage than you have to. Get in touch with a Mortgage Express broker to talk about your financial situation and the right mortgage for you.
While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Finservice Pty Ltd (Mortgage Express) for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. A Disclosure Statement is available on request and free of charge.
Finservice Pty Ltd (Mortgage Express) is authorised as a corporate credit representative (Corporate Credit Representative Number 397386) to engage in credit activities on behalf of BLSSA Pty Ltd (Australian Credit Licence number 391237) ACN 123 600 000 | Full member of MFAA | Member of Credit Ombudsman Services Ltd (COSL) | Member of Choice Aggregation Services.