The Ultimate Guide to Mortgage Stress

What is mortgage stress?

Mortgage stress is a form of financial stress. If you’re spending more than 30% of your pre-tax income on home loan repayments, it’s likely you’re feeling it.

Signs that you may be experiencing mortgage stress include feeling anxious, pressured or frustrated each time a bill arrives.

You may have little or no savings at all. You may run out of money before each payday. In many cases, you may rely on credit cards to make ends meet.

If your household income doesn’t cover the cost of your home loan repayments, that's a very clear sign of mortgage stress.

The good news is that we can help.

The rise of mortgage stress in Australia

Mortgage stress is rising amongst Aussies because the cost of housing has skyrocketed while wage growth has remained relatively flat. The loans Aussies are taking out make up more and more of their income.
 
Due to the size and duration of their loans, many Aussies feel stuck. They don’t have enough to cover the other costs of living, let alone save or make investments.

In the 80s, house prices were only two to three times the average income putting the dream of owning a home within reach.
 
These days, house prices are as high as five times the average income and depending on where you live, it may even be more. Buying a home and making the repayments is more difficult than ever, and many Aussies are feeling the pinch.

Why are you experiencing mortgage stress?

Mortgage stress comes from a variety of factors.

You might have borrowed more than you can afford. You might not have an effective budget in place to manage your daily spending. Your home loan could be structured incorrectly.

Whether you’re a low, middle or high income earner, you’ll have a ton of necessities to pay for such as food, transportation, medical fees, as well as various insurances on top of your home loan repayments.

When each month already sees a huge chunk of your income go to home loan repayments, unexpected expenses can put you under more mortgage stress than you can handle.

These scenarios might include:

  • Getting sick or injured, and being unable to work
  • Losing your job
  • Relationship breakdowns between couples, family, or friends
  • Interest rate rises
  • Large, unexpected expenses

This makes it necessary to find ways to lower mortgage stress as quickly and effectively as possible. That's where MyBudget can help.

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Step 1: Create a detailed budget

Set aside some time to create a detailed budget for the next 12 months.
 
Your budget will highlight everything you can and can’t afford. It will give you control over your future spending and help you ease any mortgage stress you’re feeling.
 
Factor everything into your budget. Include every bill, every repayment you need to make, especially your home loan repayments.
 
Plan to pay more than the minimum required instalment so you have a buffer in case interest rates rise.
 
Have a think about what you spend your money on and if you’re not sure, look through your past bank statements. Include everything from your groceries, eating out, coffee, insurance, car registration costs through to your medical and transport fees.
 
When finalising your budget, make sure there’s room for savings and contingency for any unexpected worst-case scenarios which may occur.
 
By working hard at creating your 12-month budget, you’ll be putting yourself in a position to make better financial decisions. In the end, you’ll be able to ease mortgage stress and feel more confident about your finances.

 

 

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Step 2: Shop around

While creating your 12-month budget, you’ll be looking at how much you’re spending on your mortgage, power, insurances and much more.
 
This is the perfect time to see where you can reduce your costs and in turn, reduce your mortgage stress.
 
If numbers ever look too high to you, don’t be afraid to look at other providers for a better deal. They’re definitely out there.
 
Just be sure you ask about exit fees from current providers before you make a switch.

 

 

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Step 3: Consolidate your debts

While creating your budget, you may have found multiple streams of debt. Managing so many streams of debt can be time consuming and contribute to mortgage stress.
 
To make managing your debts easier, you can consolidate them by bundling multiple debts into one.
 
Make sure you have a plan to repay it. Sometimes rates jump up after a honeymoon period on a new product ends.

Debt consolidation is not a one-size-fits-all solution, so give us a call and talk through your options. We can adjust your budget to suit your specific needs and goals.

Tammy’s mortgage stress tips

  • Create a budget that includes all your expenses
  • A savings plan and a buffer against interest rate rises
  • Use your budget to identify areas to save or cut back
  • Makeover your daily financial habits to get ahead

Minimise your bad debts:

  • Use cash, not credit, for living expenses and everyday purchases
  • If you do use a credit card, pay the balance in full every month
  • Buy only what you need, not what you want

Manage your good debts:

  • Don’t over-commit yourself
  • Pay more than the minimum required instalment on your home loan
  • Do your research and make sure you understand that investments are usually long-term propositions