How To Manage Mortgage Stress

Are you struggling to keep up with your mortgage payments? You’re not alone. 

Recent surveys show that almost a quarter of mortgage holders are at risk of mortgage stress. With the Reserve Bank of Australia (RBA) continuing to raise the cash rate, it’s essential to understand what options are available to manage mortgage stress. 

Here are some tips for homeowners:

Understanding Mortgage Stress

Mortgage stress occurs when 30% of a household’s pre-tax income is used for mortgage payments. 

If you’re in this situation, it’s crucial to take action as soon as possible. According to a recent poll, nearly a quarter of mortgage holders, about 1.19 million people, were at risk in the three months to January, which is the highest figure since June 2012.

Prevention Is The Best Cure

Avoiding mortgage stress starts with the right finance strategy. When planning your home loan, lenders factor in a 3% interest rate buffer. The 3% mortgage serviceability buffer means that owner-occupiers applying for loans with interest rates above 5% must demonstrate their ability to make repayments if interest rates rise to over 8%. 

Borrowers who took out their mortgage when the cash rate was at a record low of 0.10% (November 2020 – May 2022) may now be on rates above that 3% threshold, so it’s technically uncertain if they can meet their repayments. 

Seek a Mortgage Broker’s Assistance

If you’re experiencing mortgage stress, we can help. We work on your behalf, with your bank, to navigate the various options available to you. 

Our mortgage brokers can help you negotiate with your bank for better repayment terms and lower interest rates. We can also provide guidance on things like refinancing or moving to interest-only repayments.

Options for Relief

Here are some options you could consider if you’re experiencing mortgage stress:

1. Ask for a Mortgage Holiday

If you’re experiencing short-term hardship, your bank may offer hardship assistance. This is usually reserved for occasions when a specific event has temporarily impacted your cash flow, such as unemployment, serious illness, injury, or the death of a loved one. 

Contact your lender as soon as possible if you find yourself in this position. With sufficient evidence, most financial institutions will offer assistance, as they don’t want to lose you as a customer. You may be able to negotiate a ‘mortgage holiday,’ which is a deferral on repayments. 

However, keep in mind that you will have to pay the interest from the paused period when repayments resume.

2. Move to Interest-Only Repayments

Another option you could discuss with your bank is moving to interest-only repayments for a period of time. This can help buy you some time as it means there’s less money they have to come up with. However, keep in mind that this is not a long-term solution, as you’re not making any inroads to the principal component of your mortgage unless you rapidly put more money in later on.

3. Ask for a Better Rate

Pushing a lender for a better mortgage rate is something financial experts encourage everyone to do. We do this for all Aussiewide clients as part of our ongoing service. In 2022 alone we reviewed 2,638 loans and were able to negotiate a better rate for 948 of them, saving an average of $780.00 per year.

If you are not an Aussiewide client, but would like some help negotiating a better rate, please contact us.

4. Refinance

There are two main scenarios where refinancing might be an appropriate option. 

The first is if another bank is offering a better deal. In this case you can move to that bank and benefit from the lower interest rate they can offer. 

The second is by extending your loan term (either with your current lender or a new one). This would ultimately mean paying more interest over the life of the loan, but it can make it easier to meet lower monthly repayments.

5. Consolidate Debts

Debt consolidation is another option for relief that can help you manage your debts more efficiently by consolidating multiple debts into a single, more manageable loan with a lower interest rate. 

This option is particularly useful if you have multiple high-interest debts, such as credit card debts, personal loans, and car loans. By consolidating these debts into one, you can reduce your overall interest rate and monthly payments, making it easier to manage your finances. 

Have a “Plan B”

It’s important to have a “Plan B” if other relief options don’t work. That may involve selling the property or accessing superannuation.

In a perfect world, you won’t need to resort to these options, but it’s important to be ahead of these problems and plan for all eventualities as early as possible. 

The best thing you can do is to speak to your mortgage broker as early as possible and be completely honest and transparent about your situation. That way we can create the optimal plan for you – one that leaves no stone unturned. 

Emotions Are High

The emotional toll of mortgage stress cannot be overstated. It’s not just about the numbers, but the anxiety and worry that comes with not being able to meet your financial obligations. 

If you’re feeling upset or distressed, it’s essential to remember that you’re not alone. There are resources available to help you cope during this difficult time. 

The National Debt Helpline is one such resource that can offer support and guidance. They have a team of financial counsellors who can help you with practical advice on managing your debts, making a budget, and accessing hardship assistance. 

The service is free, confidential, and available to anyone experiencing financial difficulty. Remember, seeking help is a sign of strength, not weakness. Don’t hesitate to reach out if you need assistance.

In Conclusion

If you are experiencing mortgage stress, there are several options available to you. 

It is in a bank’s best interest to keep you as a customer and make arrangements that ensure you’re able to meet your repayments over the long term.

Seeking assistance from a mortgage broker can help you review your options and find the most appropriate path forward. 

The best thing you can do is to talk to a mortgage broker as early as possible and be open and honest. (It is quite literally our job to help!)

Our services are free of cost and obligation. And we can even do most of the paper work for you. So don’t hesitate to reach out and get the help you need to manage your mortgage stress.