What is mortgage stress?


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3 min read

Mortgage stress is not the worried feeling you get when the news is constantly filled with speculation around housing affordability, property bubbles, or interest rate rises. Instead, mortgage stress can be broadly defined as when your household’s income doesn’t adequately cover the cost of your mortgage and other expenses.

While there’s no firm criteria for defining mortgage stress, a common industry benchmark is to consider any household where over 30% of the household’s post-tax income goes to servicing a mortgage as being in mortgage stress.

According to an ABC report, an average of one in four Australian households experience a degree of mortgage stress, with many of Australia’s most mortgage-stressed households being found in regional and remote postcodes. The report predicted that if interest rates were to rise, more and more Australian households would go into mortgage stress, including more and more households in urban areas.

How can you manage mortgage stress?

If you’re in mortgage stress, it may not be easy to overcome. There are several potential options that could help you find your financial feet, though they won’t all apply to all situations – consult a financial adviser for specific advice regarding your household’s unique budget:

  • Refinance your home loan – If you’ve built up some equity in your property, you may be in a position to negotiate a lower, more affordable interest rate from your current lender, or to switch to another lender offering a deal that better suits your financial circumstances. This can lower your repayments in the short term and give you some breathing room in your monthly budget.
  • Go interest-only – Rather than paying principal and interest on your home loan each month, your lender may allow you to shrink your repayments by only covering your home loan’s interest costs. While this can help relieve some mortgage stress in the short term, it may not be a feasible long-term solution, as your loan will take much longer to pay off, meaning you’ll ultimately pay more in interest charges over the long term.
  • Consolidate your debts – If you’re struggling to juggle payments on a home loan, personal loan, car loan and credit card, it may be possible to bundle all of these smaller debts into your mortgage, and be charged interest just once per month rather than multiple times. This may bring you some relief in the short term, though a larger loan may take longer to repay, which you may pay more interest charges over the lifetime of your loan.  

Refinancing home loans: