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Stay away from Mortgage Stress Street

October 5, 2010

While buying a home is an exciting and pivotal time in your life, it can also be very stressful. Interest rate rises, the higher cost of living and unemployment all impact the level of mortgage stress that households may feel, pushing some borrowers off Struggle Street and into Mortgage Stress Street.

According to the Fujitsu Mortgage Stress Report, it is estimated that by the end of this year around 469,000 households will be in some degree of discomfort with approximately 267,000 in "severe stress". Approximately 32,000 households will default by the end of the year, with first home buyers and young families feeling a majority of the pain.

Business research and forecasting company BIS Shrapnel, predicts that we should expect higher interest rates of up to 9 percent by 2013.

If this is the case, more people will feel the strain caused by mortgage stress, struggling with their home loan repayments and may be on the verge of losing their homes.

Keep mortgage stress to a minimum
But there is some good news as there are ways that you can take back the wheel and help you keep off Mortgage Stress Street.

Additional repayments. While interest rates are relatively affordable, work out a budget and see if you can afford to make additional repayments on your loan. This will reduce the amount of interest you pay as well as cut back the amount of time it takes to pay off your mortgage. It may also help reduce the burden if rates rise. For instance, if you paid an extra $100 per month on your $300,000 mortgage, at the current average standard variable rate of 7.05 percent you would save yourself more than $44,000 and cut almost three years off your 25-year loan.

Refinance. Every 12 months it is a good idea to do a health check on your mortgage and see what other deals are in the market. If you find another lender offering a much lower interest rate, consider making the switch. Remember to find out the fees involved and work out if it is worth it. Use home loan comparison sites to see what else is currently on the market and how much you can save.

Legal aid. Governments fund legal aid services for households experiencing mortgage stress around Australia. If you are in financial trouble and can't afford to pay for a lawyer, legal aid may be able to help you. For instance, if you continuously default on your mortgage repayments then your financial institution has the right to serve you a default notice. You then have 30 days to catch up on your repayments or make alternative arrangements. However if you don't you may have to go to court, at which point you can call upon legal aid for legal advice or to represent you in court. For more information on what legal aid is available in your state or on how to get out of debt and relieve mortgage stress, visit the Australian Securities and Investment Commission's FIDO website.

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