Take our mortgage stress test
Despite interest rates in Australia being at a generous all-time low, stagnant salary growth and job cuts have still led to a 20%1 increase in households suffering from mortgage stress.
With an estimated 910,0002 homeowners currently experiencing mortgage stress, this is expected to grow by at least 10% over the next 12 months, resulting in more than a million Australian homeowners being in financial difficulty and struggling to make their home loan repayments throughout 2018.
What is mortgage stress?
Mortgage stress is when your household income is not sufficient enough to cover your home loan repayments. While there is no fixed definition, it is widely agreed that mortgage stress is present when mortgage repayments equate to 30% or more of pre-tax income.
Mortgage stress test
Are you suffering mortgage stress? Ask yourself the following questions to find out:
- Do you think that you will soon face a reduction in household income or need to make a large outgoing payment that could cause you to miss a scheduled mortgage repayment?
- Have you started to reduce your lifestyle outgoings, i.e. meals out or holidays, due to needing to pay bills?
- Are you finding it increasingly tricky to pay off your credit cards on time?
If you answered “yes” to one or more of the above, you may not yet be suffering from mortgage stress, however if you do not address your current situation then you may soon find yourself in trouble.
- Are you behind on one or more scheduled home loan repayments?
- Do you only pay off the interest on your mortgage?
- Do you pay your household bills with a credit card?
- Do you pay more than 30% of your pre-tax household income to cover your mortgage repayments?
If you answered “yes” to one or more of the above, you are most likely to be suffering from mortgage stress.
I’m suffering mortgage stress – What can I do?
Refinance your home loan
Discuss what your refinancing options are with your home loan provider. You may be able to reduce your scheduled repayment amounts to enable you to cover the cost easier. Ensure you consider all of the options available to get the best deal possible.
Consolidate your debts
f the payments on other household loans are a contributing factor to your mortgage stress, then consolidating them into one payment could be a possibility to help you ensure you are only charged interest just once per month on the one consolidated loan amount. While delivering a short-term reprieve, you will pay more interest over the lifetime of the loan, so improving your financial situation while experiencing this temporary relief is key.
Prioritise paying the highest interest rate loan first
Be smart with your repayments to ensure that, where possible, you are minimising the interest you are incurring should you be unable to pay them all off in full. Paying the loan with the greatest level of interest first will help lower the total debt you are accumulating each month.
Extra resources
Take a look at the MoneySmart website which has a number of resources plus features videos of real people talking about how they've handled mortgage stress.
When you cover yourself with an ALI Group Loan Protection Plan, we may help you manage your mortgage stress in the event of involuntary unemployment, serious illness/injury or even, death – and you’re free to use the money as you see fit. Talk to an ALI-authorised mortgage broker today.
1 http://www.digitalfinanceanalytics.com/blog/october-mortgage-stress-higher-again-see-the-top-10-post-codes/
2 http://www.digitalfinanceanalytics.com/blog/october-mortgage-stress-higher-again-see-the-top-10-post-codes/
Loan Protection Plan is jointly issued by Hannover Life Re of Australasia Ltd ABN 37 062 395 484 (Death, Terminal Illness, Living and Accidental Injury Benefits) and QBE Insurance (Australia) Limited ABN 78 003 191 035 AFSL 239545 (Involuntary Unemployment Benefit). It is distributed by Australian Life Insurance Distribution Pty Ltd ABN 31 103 157 811 AFSG 226403 (ALI). ALI receives commission for each policy sold. Any advice provided is of a general nature only and does not take into consideration your personal objectives, financial situation or needs. You should consider the Product Disclosure Statement when deciding if this product is appropriate for you.