The topic of mortgage stress has long been a concern for many Australians. This article provides a comprehensive exploration of what is mortgage stress, including its symptoms, causes, and solutions.
The knowledge gained from reading this article will empower you to better manage your mortgage and reduce the stress it may be causing you.
So, whether you’re already in mortgage stress or are looking to prevent it, keep reading to become well-versed in this critical topic.
What is Mortgage Stress?
The definition of mortgage stress is commonly defined as when a household finds it difficult to meet their mortgage repayments due to the financial situation they find themselves in.
Mortgage stress occurs when more than 30% of a homeowner’s pre-tax income is spent on home loan repayments. According to the Australian Bureau of Statistics, this scenario is unfortunately quite common around Australia.
Mortgage stress can lead to severe financial stress and, in worst-case scenarios, result in mortgage arrears or default. When a household with relatively low income spends more than 30% of their income on their home loan, it is considered to be in mortgage stress.
What are the Signs of Mortgage Stress?
Mortgage stress can often creep up unnoticed. Some of the signs of mortgage stress include difficulty in paying bills, skipping payments, and needing to borrow money from friends, family, or lenders to meet the monthly mortgage repayments.
Mortgage stress may be less apparent for those with a fixed rate home loan, but sudden interest rate rises can cause a drastic change in a household’s financial situation.
Therefore, it’s vital to regularly take into account the potential for such fluctuations when assessing your home loan every few months.
What Causes Mortgage Stress in Australia?
Mortgage stress in Australia is largely caused by rising interest rates, an increase in the cost of living, or a drop in household income.
If the interest rate on your current mortgage increases, it can push your home loan repayments up, increasing the proportion of your pre-tax income spent on repayments and leading you into mortgage stress.
Other causes of mortgage stress may include unemployment or underemployment, unforeseen expenses, or simply borrowing more than you can afford to make in mortgage repayments.
How Can a Mortgage Stress Calculator Help?
A mortgage stress calculator can provide a clear picture of your financial situation, allowing you to measure mortgage stress accurately.
By inputting your household income, mortgage repayments, and other expenses, the calculator can determine the ratio of income to loan repayments. If this ratio exceeds 30%, you may be in mortgage stress.
This calculator can help you find areas where you can potentially cut costs or increase income to make your loan repayments more manageable. It’s an invaluable tool for Australians looking to understand their mortgage better and actively avoid mortgage stress.
How to Avoid Mortgage Stress?
There are several ways to avoid mortgage stress. Firstly, consider keeping a close eye on your home loan interest rates. If your lender raises rates, it might be time to shop around for a lower interest rate. Consider both fixed rate and variable rate options as both have their pros and cons.
Secondly, maintain a buffer. Having a financial safety net can help you manage any unexpected costs or changes to your financial circumstances without risking mortgage stress.
Finally, it’s crucial to ensure you are not borrowing more than you can comfortably repay. When getting a home loan, a repayment calculator can assist in working out what you can realistically afford in mortgage repayments.
What to Do if You’re Already in Mortgage Stress?
If you find yourself already in mortgage stress, don’t panic. The first step is to understand the severity of your situation. Use a mortgage stress calculator to gauge your position and seek counsel. Contact the National Debt Helpline for free advice.
It’s also worth reaching out to your lender to discuss your situation. They may be able to provide options such as reducing your mortgage repayments, changing the type of home loan, or providing a short pause in repayments to help manage your situation better.
You can also speak to Soho Home Loans for more advice and guidance on managing your mortgage.
Remember, while mortgage stress is a real and concerning issue for many Australians, with the right knowledge and tools at hand, you can effectively manage and even alleviate this burden.
More on ‘What is mortgage stress’
What is the 28 rule for mortgage Australia?
The 28 rule is a guideline that suggests you should not spend more than 28% of your gross income on your mortgage repayments. This includes your principal and interest payments, as well as any other associated costs, such as insurance and stamp duty.
For example, if your gross income is $100,000, you should not spend more than $28,000 per year on your mortgage. This works out to be around $2,333 per month.
It is important to note that the 28 rule is just a guideline. Your individual circumstances may mean that you can afford to spend more or less on your mortgage. However, it is a good starting point for working out how much you can afford to borrow.
How much income do you need for a 400k mortgage Australia?
The amount of income you need for a 400k mortgage in Australia will depend on a number of factors, including your loan-to-value ratio (LVR), your interest rate, and your other expenses.
As a general rule of thumb, you should aim to have a gross income of at least 3 times your mortgage repayments. So, if your mortgage repayments are $1,000 per month, you should have a gross income of at least $30,000 per year.
However, if you have a lower LVR, you may be able to get away with a lower income. For example, if you have a 20% deposit, you may only need a gross income of 2.5 times your mortgage repayments.
It is important to speak to a mortgage broker to get a more accurate estimate of how much income you need for a 400k mortgage in Australia.
Can I get a 30-year mortgage at age 55 in Australia?
Yes, you can get a 30-year mortgage at age 55 in Australia. However, it is important to note that your lender may require you to have a larger deposit and/or pay higher interest rates.
The maximum age for a home loan in Australia is 75 years. This means that if you are 55 years old, you would need to repay your mortgage before you turn 75.
If you are considering a 30-year mortgage at age 55, it is important to speak to a mortgage broker to get a more accurate estimate of your repayments and to see if you qualify for a loan.
What is the longest home loan term in Australia?
The longest home loan term in Australia is 30 years. However, some lenders may offer shorter terms, such as 25 years or 20 years.
The length of your home loan term will affect your monthly repayments. A longer term means lower monthly repayments, but you will pay more interest over the life of the loan.
It is important to choose a home loan term that you can afford to repay. If you can’t afford the monthly repayments, you may end up in mortgage stress.
