Am I in mortgage stress?

Plenty of Australian families and households are in mortgage stress right now according to economist Martin North from Digital Finance Analytics.

In January 2020, more than 1 million households were in ‘mortgage stress’ defined by DFA as a negative monthly household cashflow.

The DFA data suggests 83,400 Australian households could default on their home loan in 2020. Almost one third of home owners currently repaying their mortgage have a negative regular cashflow said DFA.

If you can’t afford your loan repayments and expenses, you might be able to claim financial hardship assistance from your bank or lender.

Other experts define mortgage stress differently:

What is mortgage stress?

If you’re spending 30 per cent or more of your pre–tax income on your mortgage repayments, then you could be in mortgage stress. Of course, you may have a high income and feel the effects of this chunk less, but for most Australians, spending a third or more on a home loan can often be a struggle.

If you think you might be under mortgage stress, then read on to find out more about how to deal with it.

How to deal with mortgage stress

There are several things you can do yourself to ease the stress, especially if you’re only just over the 30 per cent limit.

Examine your spending

Have a look through your bank and credit card statements to see if there’s anything you can cut down on to release some money each month. Things like too many Uber Eats, TV subscriptions that you don’t use anymore, cabs to work when you could walk or lots of impulse purchases all add up and could push you into the red zone.

Once you’ve identified your bad habits or money sinks, make a budget and try to stick to it most of the time. You may be surprised at the difference,

Earn some more money

You might scoff at this, but if you ask for a small raise at work, or for some overtime, you could strike lucky. Alternatively, advertise your services as a dog-walker, web designer or babysitter at weekends. Remember, every little helps!

Switch to an interest–only mortgage

This will reduce your monthly repayments quite a bit, but it’s only a short–term solution, as you’re not paying off any principal. It could be useful if you’re expecting a promotion within the next year, or while one of you is on maternity leave or similar.

Refinance your home loan

If you’re not too far over the 30 per cent, then refinancing your mortgage is a better course of action than going interest–only. Finding a lower interest rate can reduce your monthly repayments by up to $200; possibly even more.

How much of my income should I spend on home loan repayments?

Although the average rule is no more than 30 per cent, someone on a higher income might find paying this proportion out of a higher salary manageable, as long as their other expenses aren’t too luxurious. If you’re finding things a bit tight every month, however, then you’re paying more than is comfortable or safe and you need to take action.

Are you in mortgage stress?

You shouldn’t just look at the 30 per cent rule, as everyone’s circumstances are different, but the “symptoms” of mortgage stress are broadly similar:

  • You’re living from payday to payday and you’re struggling to pay your mortgage and other bills on time
  • You’ve recently lost your job or have had your hours reduced
  • You’ve had to borrow money – either from friends or family or in the form of a personal loan – to pay for regular expenses
  • Your existing home loan is interest-only and you haven’t got much equity, and
  • Your financial situation is causing health and relationship issues.

Avoiding mortgage stress before it hits

If you’re worried about falling into mortgage stress, or if you’re planning to buy your first home, then it’s important to take steps to prevent your repayments becoming uncomfortable.

If you already have a home loan, then trimming your budget or refinancing can help you to swerve mortgage stress. If you’re about to enter into any other debt agreement, then think very carefully before accepting it because it’ll add to your monthly outgoings.

If you’re about to take out a home loan, then you need to be very realistic about how much you can afford. Use a borrowing calculator to work out how much you can pay each month without overstretching yourself. It’s important to build in a savings plan to these calculations, too, to create a buffer.

Be realistic about the type of property you can afford. You can use the InfoChoice Where Can I Buy calculator to help you.

You’ll be paying a mortgage for a long time, so it needs to fit you! Look at cheaper suburbs, a slightly smaller property or maybe even a different town or city. Once you’ve built up some equity, you can think about upsizing or moving nearer to your ideal postcode.

Don’t suffer in silence – reach out

Mortgage stress isn’t just financial, it can affect your sleep, your health and your relationships.

There’s help out there and you should access it as soon as possible so that you stay at the “Cutting out my least favourite TV subscriptions” stage rather than the “I’m facing bankruptcy and my home loan is in default” stage.

There’s the National Debt Help Hotline on 1800007007, for example, or The Department of Human Services’ crisis and special help team, as well as Lifeline on 131114 for emotional support.

Home Loans: The comparison rates are based on a loan amount of $150,000 and a term of 25 years.

WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. Comparison rates are not calculated for revolving credit products.

The products compared in this article are chosen from a range of offers available to us and are not representative of all the products available in the market and influenced by a range of factors including interest rates, product costs and commercial and sponsorship arrangements

InfoChoice compares financial products from 145 banks, credit unions and other financial institutions in Australia. InfoChoice does not compare every product in the market. Some institutions may have a commercial partnership with InfoChoice. Rates are provided by partners and taken from financial institutions websites. We believe all information to be accurate on the date published. InfoChoice strives to update and keep information as accurate as possible.

The information contained on this web site is general in nature and does not take into account your personal situation. Do not interpret the listing order as an endorsement or recommendation from us.  You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.

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