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The fight or flight response to Mortgage Stress

The housing bubble, recession, and global financial crisis all seem like dirty words, and although there are signs for future concern, there is no need to panic for the well-prepared.

In the last few years we have seen home loan rates at an all-time low, house prices growing at an unprecedented level, and incomes stagnating. This may be a recipe for concern for many households. The term ‘mortgage stress’ can be identified in a number of ways. If you are paying more than 30% of your salary to your home loan, making interest-only repayments, or if you are struggling to pay utility bills and using your credit card to pay them, then you may be in mortgage stress. Some may have a personal loan for their luxury car and relationships that are suffering due to the pressure. In a residential housing market worth $6.7 trillion and rising, it’s not surprising there are many people out there suffering from mortgage stress.

Who is suffering?

It could be anyone. Mortgage stress doesn’t discriminate. You may be a battler in Frankston or a high-flyer in Brighton, mortgage stress can be felt throughout all socioeconomic areas and the reasons for this are very much the same; regardless of how large your mortgage is, if you are struggling to make repayments, then it’s likely that your income is not sufficient to maintain your lifestyle choices, and you are suffering mortgage stress.

With the cost of living rising faster in Victoria, more so than other states, we are at a higher risk of defaulting on our mortgages. Many other factors are coming into play to create mortgage stress; the Australian unemployment rate is currently 5.9%, the median house price in Melbourne is now around $850,000 and the average Australian income is $78,832.

Make it affordable

For some, mortgage-stress may be the least of their concerns, as they struggle to get into this ever-increasing market, and unfortunately, the average Aussie income of $78,832 will likely see you struggling to purchase the average Aussie house in Melbourne. However, there are still some great properties available for as little as $400,000 if you know where to look. With generous stamp duty concessions starting on the 1st of July 2017, and some First Home Buyers grant incentives still available, with as little as $10,000 in savings, you should be able to afford a mortgage to get your housing dream started. For more guidance on the type of mortgage you may be able to afford, please check out ASIC’s range of mortgage calculators at the following link:

Create a budget

Whether you are saving for a deposit and desperate to get onto the property ladder, or straining to pay your mortgage, it pays to create a budget. You need to make choices as to where you are going to spend your money and work out your priorities. You may want to start with analysing where your money goes and list every purchase and payment you make. Here’s a budget planner to get you started:

Interest rate rises

It would be foolish to think that interest rates will stay this low forever, so it’s vital to create a cushion so you won’t default on your mortgage should interest rates rise. If your budget allows, pay a little extra on your mortgage while you can so when interest rates rise you won’t suffer from ‘mortgage stress’. Make sure you can lower your repayments should the need arise.

Paying a mortgage can be challenging and handling your money efficiently is very important to creating a comfortable lifestyle. No matter how desperate the situation may seem, there is always a way out of these types of situations. And the earlier it is addressed, the easier it will be. If you are concerned that you are overcommitted and suffering from mortgage stress please discuss your situation with one of our friendly financial planners or mortgage brokers. Initial appointments are free of charge and obligation free.

Secure your financial future today!