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Mortgage stress is when an average home buyer is using more than 30% of their income to cover mortgage repayments. In other words, they're struggling to repay their home loan. It's also a growing problem in Australia.
Here's how to assess your mortgage situation and take steps to prevent or manage mortgage stress.
Remember that there are steps you can take to make your mortgage more manageable. Sit down with your financial records and get organised.
As hard as it might be, it's important to keep making repayments on your mortgage. Future lenders will be reluctant to extend credit to you if you're not able to maintain payments on your first loan.
If you're repaying your home loan with principal and interest repayments, then switching to interest-only payments can be tempting. Your repayments will suddenly get much smaller – for a while.
But ultimately, interest-only loans cost you more because you end up paying more interest. If your financial worries are short-term and you have a plan in place, then switching to interest only will give you some breathing space. Just be aware that this is only a temporary solution.
Your lender might be able to help you if you're struggling to make repayments. Just keep in mind that sometimes it's better to tell your lender as little as possible until you absolutely need help. But it's in your lender's best interest to help you.
Here are two ways your lender might be able to help:
You could be approaching mortgage stress without fully realising it.
Do any of the following statements apply to you?
If this sounds like you, you're likely facing mortgage stress.
If you're starting to feel the weight of your mortgage repayments or are looking to buy a home and are worried about mortgage stress, then there are steps you can take ahead of time.
For current homeowners, follow the steps mentioned above: look at your spending, cut costs, set a budget and consider refinancing if you can get a lower rate. Try to make extra repayments now (if you are able to) to build up a savings buffer.
For hopeful home buyers, the following are some of the most important steps you can take in advance to avoid mortgage stress:
Mortgage stress is more than financial. It can take its toll on your relationships and your mental and physical health.
Remember that there is always help available, for financial and emotional distress.
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