What is Mortgage Stress?
Owning a home is an embedded part of the great Australian dream, and Australia as a whole is one of the most debt-laden countries in the world when it comes to the mortgage levels the people of our nation are carrying. Perhaps it’s our deep love for this great southern land and wonderful lifestyle, or perhaps it’s the way we’ve seen house prices continue to rise exponentially over the last few decades as the population grows – whatever it is, us Aussies just can’t seem to resist the appeal of owning our own homes and signing on the dotted line of a mortgage.
Whilst property ownership can be a great investment with many financial benefits, the ongoing commitment of a mortgage can, at times, be a hard burden to bear for individuals, couples and families over the course of time. It’s often the case that a mortgage that began in better financial times now is causing lots of financial pressure due to a change in financial circumstances – perhaps a job loss or an addition to the family which has led to reduced income and earnings levels.
Mortgage stress is what occurs when the cost of housing is higher than it should comfortably be in comparison to that household’s income. If a household is spending 30% or more of its income on housing costs, such as rental or mortgage payments, this could be a scenario where mortgage stress becomes a very real problem.
The level of mortgage stress in Australia is on the rise, particularly in areas such as Sydney or Melbourne, which have undergone extreme exponential growth in real estate values across a relatively short timeframe. In fact, recent figures from the REIA Adelaide Housing Affordability Report of September 2015 found that on average, Australians are spending 31.7% of their median weekly family income on mortgage repayments. The report also found a decline in housing affordability across the nation, as the proportion of income that was needed to ensure loan repayments were met had increased by 1.4% (Kirsten Craze for news.com.au, 3 December 2015).
Even more recent figures from May 2017 have found that almost 52,000 Australian households are at risk of defaulting due to mortgage stress, with 32,000 unable to meet repayments on their current income levels. These figures are staggering when you think of how many people are at risk of losing their homes if their situations do not change. Sadly, too many people are unaware of the tools at their disposal and leave the situation until it’s too late to find a solution. If you believe you may be suffering from mortgage stress, don’t ignore it – by tackling the problem head-on, you may be able to find a solution that can relieve the pressure on you and your family.
The best way to figure out whether or not you may be under extra financial pressure due to mortgage stress is to do a thorough and realistic evaluation of your budget. Calculate your monthly income from all sources. Next, use that total against your monthly mortgage payments to check the total percentage your mortgage payment comes to out of your total income. If this percentage is 30% or higher, it may be time to consult a professional to assist you in finding a way to restructure your monthly mortgage commitments to lower this mortgage-to-earnings ratio and bring you out of mortgage stress.
If you find yourself under mortgage stress once you’ve critically evaluated your finances, don’t be alarmed – there are some steps you can take to move yourself into a stronger financial position.
Prioritise – take a look at where your pay check has gone over the course of the past month. Many people find that slowly, over time, their lifestyle spending increases bit by bit, until suddenly, they’re spending far more on food, drinks and entertainment than they had realized. Is there an area in your life where you’re spending more than you need to? By cutting down your spending in other areas and prioritizing your mortgage as the crucial payment that should be first out of your pay check every time it lands, you can ease some of the financial burdens by ensuring your payment priorities are in line and are serving your overall financial goals.
Make a budget – when was the last time you actually checked on that monthly budget you made a while back? This may be the perfect time to sit down and draw up a new budget that allocates funds against mortgage payments, bills, insurances, spending money and saving goals. It’s very easy for money to disappear without a total awareness of where it’s being spent if you’re not clear on what your financial goals are. It’s amazing what a conscious effort to put aside some more money every month can do in the long run, and by creating a realistic and reliable budget, you’ll be able to see how much is left once your mortgage payments have been accounted for against your monthly income.
Consult a mortgage broker/financial broker – did you know there are people who are specifically trained to assist their clients in making positive financial decisions around their home loans? Too many people are missing out from the wide variety of valuable services a mortgage broker can offer. Perhaps it’s been a long time since you’ve compared home loan rates, and there’s actually a much more attractive rate on offer at a competing bank to the bank where your loan is currently sitting. This is particularly important for people who secured their loan as an online loan, without spending time negotiating rates with different banks, and instead locking in with one bank for the mortgage process from the beginning. A mortgage broker can do all of the hard work that’s required to negotiate a lower monthly payment that will give you back some valuable dollars and create some breathing space on a month to month basis. Best of all, a mortgage broker’s services don’t come out of your pocket, and do not increase your loan – they’re paid a brokerage fee directly from the bank which has no impact on your own finances. It’s basically like you’re getting them to work on your behalf whilst the bank foots the bill!
Mortgage/financial brokers are incredibly valuable assets in the battle against rising home loan rates and monthly repayments. If you’re feeling uncomfortable with your mortgage payments, believe you may be in mortgage stress, or considering applying for a new loan, connect with a mortgage broker today. Your back pocket will thank you for many years to come and you’ll be able to rest easier knowing you’ve got the best rates available on the market for your specific needs.
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