According to Roy Morgan, an estimated 1.19 million mortgage holders (24.9%) were at risk of mortgage stress in the three months to January 2023. There have been interest rate rises since then, and Australia’s official interest rate is now at its highest in 11 years.
What is considered mortgage stress?
For homeowners, the mortgage or home loan can be the biggest monthly household expense. While there’s no official definition of mortgage stress, it is generally seen as when a household is spending more than 30% of their pre-tax income on their mortgage. However, this is dependent on individual situations and may not be the case for everyone, such as high-income earners for example.
If you are experiencing mortgage stress, you may also experience:
- Difficulty paying bills and mortgage
- Home loan repayments consuming a more than comfortable amount of household budget
- Living pay-cheque to pay-cheque
- Relying on friends or family to pay bills
- Relying on credit cards or personal loans
- Unable to afford unexpected or emergency expenses
- Unable to afford luxuries
- Significant stress on financial wellbeing
Mortgage stress can happen before home loan repayments are missed.
What causes mortgage stress?
In the current financial climate with rising home loan interest rates and the cost of living, there are more and more Australians at risk of mortgage stress. The increasing cost of essentials such as groceries, fuel, and energy, as well as rising interest rates may cause financial stress for the first time for some. Other debts in addition to home loans, as well as declining property prices, are also contributing factors.
How to avoid mortgage stress
Considerations when getting a home loan
When you’re getting a home loan, consider situations where your income may be decreased, or your home loan interest increased. You can also use our home loan calculator to check your affordability and calculate your potential repayments.
To help relieve or avoid financial stress, consider budgeting. We have a budget tracker to help with this. Try to cut down on costs where you can and avoid any more debt if possible. If budgeting is particularly important to you, you may want to consider a fixed home loan, where your repayments won’t change in the event of interest rate changes, for the duration of the fixed term. You may also want to consider splitting your home loan.
Assessing your existing home loan
If you have a fixed home loan with a low interest rate that is expiring soon, it can help to prepare yourself beforehand. We have a page dedicated to what to do when your fixed loan ends here.
Assess your existing home loan, and check if you are using features you have available to you. Are you able have an offset account? This is a separate transaction account that you can link to your home loan. The money you have in this account offsets the amount of interest you’re charged on your eligible home loan. For example, if you have $20,000 in your offset account and your home loan is $400,000, you’ll only be charged interest on $380,000. At People’s Choice, we have an offset account option on our Standard Variable Home Loan and our Variable Home Loan Package.
Consider whether you need to consolidate your loans, or refinance your existing home loan to a new loan with a better interest rate.
It is important to seek professional advice so that you can make the best decision for your individual situation.
Check your risk
If you want to check if you are at risk of mortgage stress, RateCity has a mortgage stress calculator which can help you estimate your financial risk.
What to do if you’re experiencing mortgage stress
If you have a home loan with People’s Choice and you’re worried about meeting your home loan repayments, please get in touch with us, so we can determine how to best help you.
Our financial hardship page has more information on what it means to be in a hardship situation.
Mortgage and financial stress can feel overwhelming and have a significant impact on your wellbeing. There are a range of free services you can access for further information and confidential counselling on your situation. You can find them listed here.
The content of this article is up-to-date and accurate at the time of publication (22 June 2023).