Mortgage Stress Calculator

The Great Australian Dream has always been to buy a property, but no one wants to fall into financial disarray just for trying to repay their mortgage. Mortgage stress is a measurement that can help indicate to borrowers if they are paying too high a portion of their income into their mortgage.

Mortgage stress is commonly defined as paying more than 30% of a household’s pre-tax income towards monthly mortgage repayments.

An alternative definition comes from the Australian Bureau of Statistics definition, which applies the 30% rule to low-income households specifically - income in the bottom 40% of Australia’s income distribution. This is understandable when you consider that a high-income household earning $350,000 annually versus a household with an income of $70,000 annually would view that 30% figure much differently.

Regardless, aiming to keep your mortgage repayments at or below 30% of your pre-tax income is still worthwhile for any homeowner (and for renters as well). Mortgage stress can leave you in a vulnerable position if your financial situation changes, such as if your mortgage repayments increase, your household expenses increase, or your household income decreases.

With rising inflation levels putting pressure on the Reserve Bank of Australia (RBA) to hike the cash rate, many Australian homeowners will be feeling hte punch, and may be at risk of falling victim to mortgage stress. Higher interest rates as a result of these cash rate hikes mean homeowners are paying more of their income towards their mortgage repayments. And rising inflation means your household budget has less room to accomotate higher repayments.

Rate hikes are set to continue throughout 2022, thanks to issues like the ongoing global supply chain delays, causing inflation to peak at a 21-year high. As inflation is a major factor that influences the RBA's decision to change the cash rate, it's likely that more and more Australian households could fall into mortgage stress in the next few years. 

By using the mortgage stress calculator, you can assess your current financial situation, and set a plan to ensure you're in a healthy financial position. 

If you find yourself unable to repay your mortgage, there may be serious financial repercussions.

1. Firstly, contact your lender to advise them that you’re in financial hardship and request hardship assistance. You may need to provide evidence of this through proof of a loss of income, for example.
2. If your hardship assistance ends and you’re still unable to pay your mortgage, your home loan lender may then send you a letter of demand due to late payment. If a late payment exceeds 14 days, the lender may contact a credit agency and your credit score may go down. You may also have to pay a late fee on top of your next mortgage repayment.
3. If your mortgage payment is 90 days overdue the lender may send a default notice, including legal right to change your loan terms (such as extending your loan term to reduce your repayments). This default notice may offer you a catch-up period, in which you must meet your mortgage repayments - typically within 30 days – or face further actions.
4. Finally, if you’re still unable to meet your mortgage repayments, the lender may start court action by filing a statement of claim against you, giving you a final number of days to pay back your debt. After this, the lender will typically take possession of your home and sell the property to reclaim the loan debt.

If the Mortgage Stress Calculator shows that you’re at risk of financial pressure due to your home loan costs, now is the time to consider what options may best suit your situation and budget to reduce the pressure on your household budget.

Two of the simplest ways to avoid mortgage stress are to either increase your income or lower your home loan repayments.

While getting a pay rise may be a challenge – particularly in a time of low wage growth - you may be able to lower your monthly repayments by:

• Calling up your lender and requesting a rate cut,or
• Refinancing to a more competitive low-rate lender.

It is also possible to reduce your interest charges on your mortgage by utilising home loan features, like an offset account. Any funds that you deposit into your offset account work to “offset”, or reduce, the amount you pay in interest.

You may also want to consider making extra repayments into your mortgage if your lender allows this feature, as reducing your loan principal will help to lower your ongoing mortgage repayments.