Top 8 tips to avoid mortgage stress

There are many home owners out there that have encountered mortgage stress, no matter whether they are first home buyers, next home buyers or experienced investors. There may be times when mortgage stress cannot be avoided; however, there are several things that can be done to help. So what exactly is mortgage stress?

Mortgage stress typically occurs when people start to pay more than 30% of their pre-tax income on their home loan repayments. By paying over 30% you open yourself up to more risk of getting into financial trouble so it is favourable to not over commit yourself and have some extra money put aside in your budget to play with in times of need to keep you afloat.
The first thing that you should do is have a plan in place and take note of any changes that are likely to occur in the future.

Here are my top 8 tips to consider which can help avoid mortgage stress:

1) Keep in mind future events such as having children, going back to study or changing jobs or going part time which can affect your ability to repay the loan.

2) Be realistic about how much you can actually afford to borrow and repay by knowing your budget. If not already done so, draw up a savings plan to work out how much you have left over every month and see which areas you can save money.

3) Borrowing calculators only provide rough estimates so you should ideally seek the expertise of a mortgage broker to find out your actual borrowing capacity.

4) Take out insurance which will give you peace of mind in times when you might be unable to keep up with repayments due to illness or unemployment.

5) If the budget is stretched too far, you might want to reconsider the property and go for a more affordable option.

6) Do your sums and ensure that if interest rates rise then you can still afford to make the repayments.

7) Choose to borrow a loan amount that gives you a bit extra that can be used when money gets tight.

8) If you have any other outstanding debts like personal debts, ensure that these are wiped off first if possible before purchasing a property.

Getting into difficulty

There might come a time where you start to get into difficulty with meeting your loan repayments. If this does occur you need to speak to your lender immediately before the problem gets out of hand. Your lender may grant you a repayment holiday period if you are ahead of your loan repayments, allowing you some breathing space so that you can re-work your finances and get back on your feet.

If you believe that this financial difficulty is just a short term event then your lender might be able to offer you a financial hardship program. However, if it looks as though you might be experiencing financial difficulty over the longer term then it is best to seek the help of a financial counsellor who can offer all sorts of advice including how to budget more effectively as well as being able to make arrangements with your lender to put a longer term solution in place. More often than not, it’s in the lender’s best interests to help you out so they will want to find a solution for you.

Overall, by doing your homework first and following my top tips you should be able to avoid mortgage stress. Let’s face it; nobody likes the idea of getting into financial difficulty, but if you do find yourself there it is essential that you act quickly and be upfront with your lender before this difficulty turns into a major problem.
Published on 30th of March 2020 by Marty Stanowich
Marty Stanowich
Marty Stanowich

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