What is mortgage stress, and how can you conquer it without losing your home?
As the Reserve Bank of Australia (RBA) are signalling that interest rates are expected to rise in the near future, many banks and home loan providers have started to change their own fixed rates with a rise by around 20 to 40 basis points. As a result, many Australians have been rushing to adjust their plans with their providers or changing providers altogether.
With many struggling with reduced cash flow, people are more stressed about their mortgages.
What is mortgage stress?
Mortgage stress is any financial pressure relative to meeting your mortgage repayments requirement. While there are various ways to measure mortgage stress, a generic version is when people spend at least 30 percent of their household pre-tax income on their monthly mortgage repayments.
If you’re wondering if you’re in mortgage stress, ask yourself:
- Do I have consistent difficulty in meeting my mortgage repayments?
- Do I anticipate missing my monthly repayments?
While some are stressed, some homeowners who pay more than 30 percent of their household income in monthly repayments are not. There are those who have lower spending in general so paying 30 percent or more is not a problem. Therefore, the 30 percent rule is relative to individual financial situations.
Avoiding mortgage stress
If you figured out you’re suffering from mortgage stress, here are some ways you can try to avoid it.
What can you afford?
Everyone dreams they could afford their home straightaway, but it’s not realistic for most Australians. You might be tempted to try your luck to take out another loan, however, be true to yourself about whether you can afford it. There is no point to put yourself at risk by taking on more debt.
The term “Rentvesting” is not a made-up word, it’s now one of the options that many Australians have taken up. Rentvesting is buying and leasing out an investment property, then renting your ideal living property. This is a popular strategy particularly with younger new homeowners as the prices of properties in inner-city areas continue to rise.
Imagine living in your dream home for your lifestyle and owning a property that fits your budget. It’s quite a good investment really, where the profit you make can be used for both the rent and loan repayments.
Have an offset account set up
While it will depend on your home loan provider, if you have an offset account set up, you can link the funds to your home loan. You pay interest on a lower balance as the money in your offset account reduces the balance of your home loan. It can also help reduce the interest paid on the loan.
Make sure to check first the conditions of your home loan with your provider before setting up an offset account.
Reduce unnecessary spending
Do you have a gym membership that you haven’t used for the last six months? How about a streaming membership that you’ve stopped using when you can leave your home?
Unnecessary spending like these add up and affect your financial circumstances more than you know. If you are struggling with mortgage stress, it’s just wise to cut back your spending. Cutting costs can give you extra cash to put towards your monthly mortgage repayments.
Look into Reverse Mortgage
If you’re a senior homeowner looking to refinance without ongoing payments, our equity release facility, the ASAG Reverse Mortgage, is possibly what you’re looking for.
Refinancing is another way to unlock equity in your home to fund your retirement. Our reverse mortgage solution allows you to unlock the wealth in your home to access funds without selling or losing your home. The funds can be used for various acceptable purposes, such as Senior Refinancing, as you enjoy your retirement comfortably and securely.
There are no monthly mortgage repayments with our reverse mortgage as it is paid off when you permanently leave your home, either you downsize, move to residential care, or pass away. Although, you may choose to make early repayments without penalty.
Our friendly team can assist you with more information on how our reverse mortgage works by calling us on 1300 002 724 or sending your enquiries at email@example.com.
You can also get started with your assessment of your available equity using our tool below.