What is mortgage stress?

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.