-
Mortgage stress is the financial strain experienced by homeowners who are finding it difficult to meet their mortgage repayments. It can typically occur when more than 30% of their household income is dedicated to servicing their home loan, although this may not always be the case. This situation can be compounded when there is an increase in the costs of living, such as increased expenses for essentials such as utilities, groceries, and healthcare.
What can cause mortgage stress?
1. Interest rate changes
Fluctuations in interest rates can significantly impact mortgage repayments. A rise in interest rates increases the cost of borrowing, which can potentially stretch household budgets.
2. Job loss or reduced income
Changes in employment status or reduced income can make it difficult to keep up with mortgage payments.
3. Personal circumstances
Unexpected life events such as illness, divorce, or a death in the family can affect financial stability and the ability to meet mortgage obligations.
4. Housing market conditions
Rapid increases in property prices may result in larger mortgages, which can increase the financial burden on homeowners.
What are the signs of mortgage stress?
1. Difficulty meeting repayments
Struggling to make mortgage payments on time or needing to use savings to cover repayments.
2. Cutting back on essential spending
Sacrificing spending on essentials such as groceries or utilities to meet mortgage repayment obligations.
3. Increased credit card usage
Increased reliance on credit cards to cover living expenses or other bills.
4. Emotional stress
Anxiety, sleeplessness, or an increased focus on financial concerns.
What are some ways that people deal with mortgage stress?
1. Review your budget
Assess your expenses
Identify discretionary spending that can be reduced.
Create a realistic budget
Develop a budget that prioritises essential expenses.
2. Communicate with your lender
Contact your lender early
If you anticipate difficulty in meeting repayments, contact your lender as soon as possible. Depending on your circumstances, they may be able to assist you with various options which could include restructuring your loan or working out a payment plan.
Negotiate your interest rate if possible
Enquire about whether it is possible to negotiate a lower interest rate..
3. Increase your income
Explore additional income streams
Consider whether it may be possible to obtain additional part-time work or rent out a spare room to increase your household income.
Review career opportunities
Assess opportunities for career advancement or additional training that may assist you to enhance your earning potential.
4. Review your mortgage
Consider whether refinancing may assist
Explore refinancing options, including whether it is possible to secure a lower interest rate.
Determine whether a switch to Interest-only payments for a period could assist you
Temporarily switching to interest-only payments may provide short-term relief in the form of lower repayments during an interest-only period, although it may increase total interest costs over the life of the loan.
5. Seek financial assistance
Government Support
Enquire about government assistance programs that may be available to homeowners experiencing financial hardship.
Financial Counselling
Seek advice from a financial counsellor or advisor who can provide personalised guidance based on your financial situation.
6. Consider whether Downsizing or Renting may assist
Downsizing
Selling your current home and purchasing a more affordable property or renting until your financial situation stabilises may be an option.
Renting out your property
Renting out your property and moving to a more affordable rental property could be considered
7. Build an emergency fund if possible
Creating a safety net
Consider whether you’re able to establish an emergency fund to cover unexpected expenses or unanticipated income disruptions.
8. Seek Support
Talk to family and friends
Discussing your financial concerns with trusted family members or friends can provide emotional support.
Utilise support services
Take advantage of community support services or financial hardship programs offered by banks or charitable organisations.
In conclusion
Mortgage stress can happen to any homeowner, and is influenced by various economic and personal factors. Recognising the signs of mortgage stress and taking proactive steps early on can give individuals the best chance at regaining financial stability.
Fraud protection.
Now it’s personal.
ANZ Falcon® technology monitors millions of transactions every day to help keep you safe from fraud.
Falcon® is a registered trademark of Fair Isaac Corporation.