It’s probably no surprise to many of you to learn that 35% of Australians have experienced ‘mortgage stress’ in the last 12 months according to a survey conducted by my company.
More than 15% said there have been months when they were not even sure if they could make the repayments on their home. This situation came about because of a forced pay cut (10%).
Of most concern in respect of continuing mortgage stress are rising utility bills, job security, interest rates and managing a budget.
In order to manage a home loan more effectively, 43% of survey respondents said they would be willing to sacrifice a holiday, while 29% said they would eat out less. A further 15% said they would go as far as renting a room out in their home in order to bring in some extra dollars to cover the payments.
There are ways to handle mortgage stress effectively and not let it take charge of everyday life.
Recognising that you’re struggling with repayments is the first step to taking control of the situation. By making some key lifestyle and personal finance choices, it is possible to relieve the stress and get mortgage repayments in order.
Here are five tips to help stay in a healthy mortgage state and keep stress at bay.
1. Create a budget
Create a budget so it is easier to monitor your costs and understand the money coming in and out of your household. Based on that, think about your priorities and identify what you need for basic living expenses and which are extras. It can be worth cutting back on extras and putting them towards your mortgage repayments.
2. Meet with your bank
Set up an appointment with your bank and explain your financial situation and that you are experiencing hardship in repaying your home loan. Discuss the following options with them to see if they can offer you a solution:
- Negotiating a lower interest rate on your home loan.
- Asking your lender for a hardship variation to temporarily reduce your payments or delay payments.
- Agreeing to postpone your repayments for an agreed period.
- Depending on the circumstances, it is possible to negotiate a way to make it more affordable.
3. Temporarily change how you pay your home loan
If your credit rating has taken a hit recently, you might want to hold off a complete loan refinance as you might not be able to switch to the best loan for you right now. Instead, you can switch your payment type on your loan to interest only, if that’s an option from your lender. Consider it a temporary reduction in your repayments until you sort out your financial troubles.
4. Shop around
Do your homework and look at all your options. Research online and talk to other financial institutions that might be willing to offer you a better deal. Compare the latest home loans on the market and find a better deal to suit your needs. It is crucial that you calculate whether the benefits outweigh the penalty costs you might have to pay for switching. You might find a way to come out on top.
5. Pay extra
Paying a little extra each month on your mortgage can make a huge difference in the long run. If you find that you have a little extra room in your budget, put that towards your mortgage repayments. Paying that little extra now, while you can, means you can cut back down the track if you need to without facing major penalties. This strategy is very effective when combined with an offset account facility.