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What is mortgage stress and what can I do about it?

With the Reserve Bank of Australia (RBA) having introduced a total of 12 interest rate increases since May 2022 in order to curb the rate of inflation, many Australian home owners are finding themselves deep in mortgage stress. Financial hardship has unfortunately been a common outcome across many Australian households due to recent ramping living cost pressures, resulting in heightened mortgage stress in Australia.

Owning a house can be stressful, especially during a time of economic uncertainty and a rising cash rate. That’s why it’s important to understand the causes of mortgage stress, learn how to cope with it during hard times, and what you can do to overcome it.

What is considered mortgage stress?

The definition of mortgage stress is often referred to as the cause of borrowers experiencing financial stress and not being able to make their minimum monthly repayments on their home loan. With all of these recent interest rate rises, it’s easy to imagine that a household income committing to a once affordable mortgage loan is now experiencing high mortgage stress levels.

Borrowers who are struggling financially may be forced to go into financial hardship, which could lead to further financial problems down the road. Creditors may look to see if you have an emergency fund savings but if you don’t or have already gone through these savings, you may be experiencing stress due to not being set up to handle any additional unexpected expenses.

How do you know if you’re in mortgage stress?

Signs of mortgage stress are similar to financial stress; you’re not sure how you’re going to keep up with monthly repayments, causing pressure on your mental health with stress, anxiety and depression.

During the process of a loan application, many financial institutions require borrowers to prove that they can afford the loan repayments. However, what with the recent changes and cash rate increases, this may no longer be the case.

A woman and a manWhat is mortgage stress

How do you relieve mortgage stress?

If you find yourself experiencing mortgage stress, there are several steps you can take to alleviate the burden. One effective method is to create a budget planner, which can help you better manage your expenses and income. Additionally, seeking professional advice from experts in the field can provide valuable insights and guidance on how to navigate your mortgage stress situation.

By exploring these options, you can take proactive steps towards relieving the stress associated with your mortgage.

‘I can’t pay my mortgage: what should I do?’

When facing times of financial stress, it’s important for borrowers to be as proactive as possible. As soon as the bank balance begins to dwindle, understanding your options can help to avoid financial stress altogether.

We’ve listed a few options below:

Create a budget

Financial stress is often caused by not being able to determine how you’re tracking financially. It’s a fear of the unknown. The best way to know what you can expect is to have a household budget that shows where your money is going on a daily, weekly and monthly basis.

It’s important to factor in everything; from streaming services to mortgage repayments; monthly date nights to weekly groceries; credit cards, personal loans—you get the idea.

Click here to download our personal budget template.

By creating a budget and looking through your bank statements, you may be able to find a few unnecessary expenses that can either be reduced or removed entirely. When you create a budget for your household finances that spans 12 months, you may be shocked to learn just how much you spend on items like your phone plan or weekly living expenses. Simple things like reducing your monthly phone data or bringing lunch to work can go a long way.

Refinance your mortgage

Refinancing your mortgage is the process of taking out a second mortgage on your house in order to pay off your current mortgage. This could allow you to take advantage of lower interest rates, which could save you thousands of dollars per year.

Clients who have refinanced their home loan through MyBudget Loans have saved an average $7,000 in loan repayments per year, based on data as of October 2022. By enquiring with us or opening up a dialogue with a financial counsellor for financial advice or a mortgage broker on competitive rates, you may be able to find some options to get secure cheaper home loan repayments.

Debt consolidation

If you’re finding it difficult to keep track of credit card and personal loan payments, a consolidation loan may be a way to alleviate some of that financial stress. Consolidating your debts into one monthly payment may help to free up some money in your budget.

Consolidate your personal debt into your home loan

With enough equity on your home loan, you may even be eligible to consolidate your personal debt into your mortgage, saving you hundreds (if not thousands) of dollars per year.

Apply for financial hardship with your lender

If the above options don’t apply to you, then you may need to consider applying for financial hardship with your mortgage lender. By doing so, you may be able to apply for:

Lower payments for a period of time

Reducing your payments for a discussed period of time can help give you some breathing space while you work to stabilise your budget. This could be due to job loss, reduction of hours, medical reasons.

what is mortgage stress and what can i do about it?

Arrears capitalisation

Arrears are the amount of money you are behind on and owing in addition to your minimum payments. Arrears capitalisation (or capping arrears) is when you absorb the arrears into the total amount of the loan, allowing you to start fresh. However, keep in mind that your minimum mortgage repayment will increase over the lifetime of your loan as a result.

Repayment of arrears over several months

If financial hardship was the result of your arrears but you are now in a position to pay them back, you can set up a repayment plan to pay back your arrears over an agreed period of time. Keep in mind that these payments will be required in addition to your minimum repayments.

How many Australians are in mortgage stress?

1.57 million mortgage holders in Australia are currently at risk of mortgage stress according to an August 2023 research conducted by Roy Morgan, having increased from 948,000 back in September 2022. This number equates to 30.2% of Australian home owners with a mortgage, a new record high. The official loan interest rate is the highest since May 2012. 

With increasing pressures resulting from the rising cost of living, alongside the 2023 Australian Federal Budget indicating that energy prices are expected to soar by 50% between now and 2024, mortgage and financial stress may not be surprising, but it’s certainly alarming.

This also comes off the back of the recent mortgage cliff which saw many Australian home owners’ fixed rate period switch to much higher variable rates. And while you may already be spending most of your income on mortgage repayments already, these high variable rates add even more pressure. This is also on the back of rising property prices, making it difficult for potential property owners to enter the market.

How can MyBudget help with mortgage stress?

If you’re feeling stressed or merely want to get ahead before you start to really feel the financial strain, MyBudget has helped over 130,000 Australians with their finances, helping them to reach their budgeting goals and paying their bills on time. To learn more, you can call us on 1300 300 922 or enquire online.

This article has been prepared for information purposes only, and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information in this article you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.