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Mortgage stress and five tips to avoid it

There are borrowers from all walks of life who are wondering how they can ensure they don’t default on their home loan. This is commonly referred to as mortgage stress; a situation in which borrowers are struggling to make loan repayments due to a variety of reasons, such as rising interest rates, high living costs or high level of debt.


There are borrowers from all walks of life who are wondering how they can ensure they don't default on their home loan. This is commonly referred to as mortgage stress; a situation in which borrowers are struggling to make loan repayments due to a variety of reasons, such as rising interest rates, high living costs or high level of debt.

To avoid mortgage stress, we recommend planning ahead by reassessing your budget, scheduling automatic home loan repayments, looking at your other debts and creating a savings buffer.

Here are five tips for keeping on track & keeping mortgage stress off your household

1. Redo your budget
You should be reassessing your budget regularly; once a year is nowhere near enough if you have a variable rate home loan. It is always a good idea to revisit your budget every couple of months and any time you think you may need extra spending money, such as during holiday periods. Yesterday's budget landscape is different to today's and tomorrow will bring more changes. Do you really know what your expenditure has been, is and will be over the next three months? What costs you can save on and what extra spending will arrive with celebrations and festivities? A budget is there to be followed, so consider all possible activities the short and medium term will bring then cost them in now.

2. Back to the future with loan repayments
It's sensible to assume rates will fluctuate. Set today's budget to act on that now by increasing your mortgage repayment amount as if rates were a couple of percentage points higher. If it takes years for rates to move that far then you've built up a fantastic financial buffer and provided yourself with peace of mind. If you can make even higher mortgage repayments, that's great. It also pays to remember while extra funds sit in your home loan account you're reducing the interest owed and you may be able to access these funds should the need arise.

3. Let your lender do the remembering
Many lenders allow you to set automatic home loan and other debt repayments well into the future so you don't have to remember to transfer the dollars each time. The funds are simply transferred on the date you select (it's a good idea to make this your pay day or the day after). The only thing left to action is increasing your repayment amount if you have a variable interest rate that increases.

4. Don't take on extra debts
Common causes of mortgage stress are higher interest rates and rising living costs. However, overindulgence in debt accumulated after the mortgage is approved is also a big issue.

5. Stick to your limit
It is easy to go over your credit limit, miss paying bills or fall into the habit of thinking “another debt won't hurt”. You can quickly lose track of spending and fall behind, which is when defaults appear on your credit file. Have a budget and stick to it. Credit providers may also tempt you to increase your limit. Resist unless absolutely necessary; don't increase spending simply because you can. If you are only just getting by you should think about reducing your limit until in the clear and perhaps cut up your credit card/s.

Helpful links:

Home loan comparison calculator – Compare your current repayments with those of other lenders with lower interest rate; and find out how much you can potentially save.

Pearls of wisdom on mortgage stress – Read some words of wisdom by the world's greatest investor Warren Buffett on some basic rules of investing & how they can they be applied on your current mortgage situation.

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