Is your household under mortgage stress?

Article updated 8 September 2021

What is mortgage stress?

Although there is no official criteria for mortgage stress, it is a type of financial stress that occurs when your mortgage repayments become too high and results in a struggle to pay your bills or other monthly living expenses. A common guideline used to test if you’re in mortgage stress is if 30% of your income is going on mortgage repayments.¹

Areas/Postcodes with high mortgage stress

With the Coronavirus pandemic and Australia entering its first recession in 29 years, there's no surprise that mortgage stress is becoming more common within homeowners across the country. As of July 2021, data from the DFA has indicated that the overall mortgage stress level is currently sitting at 41.33% or 1.53 million households.² 

The top areas currently experience mortgage stress, by number of households stressed are currently concentrated in the high growth corridors of Melbourne and in regional centres. 

The top 10 postcodes currently experiencing mortgage stress in Australia include:³ 

1. Tapping, WA (6065) 
2. Narre Warren, VIC (3805)
3. Berwick, VIC (3806)
4. Sydenham, VIC (3037)
5. Cranbourne, VIC (3977)
6. Ballarat East, VIC (3350)
7. Merriwa, WA (6030)
8. Pakenham, VIC (3810)
9. Mount Annan, NSW (2567)
10. Roxburgh Park, VIC (3064)   

Mortgage stress and mental health

As with all types of financial stress, mortgage stress can have many impacts to one’s personal life and mental health. For many, a mortgage is one of the biggest financial commitments a person will take in their life, therefore it’s only natural that mortgage stress can result in negative impacts on your mental health, even causing depression and anxiety.

As mortgage stress is becoming more prevalent, it is important to understand the impacts this can have on your mental health and understand the options available to help relieve some of the stress. If you’re finding your mortgage stress and the impacts of lockdown affecting your mental health it’s important to know that help is always available. 

The following resources can help if mental health issues are affecting yourself or something you know: 

• Speak to a doctor
• Speak with a family member or friend
• Call Beyond Blue on 1300 224 636 or chat online: https://www.beyondblue.org.au/
• Call Lifeline on 13 11 14 or chat online: https://www.lifeline.org.au/
• Visit Black Dog Institute: www.blackdoginstitute.org.au. 

For anyone currently experiencing mortgage stress or if you’re concerned you may be heading that way, we have three solutions that may help you avoid or lower your mortgage stress.

Mortgage stress solution #1: Refinancing

Refinancing can be a great way to avoid mortgage stress. If your current home loan is no longer in line with your needs and goals due to a change in your situation, it may be worth looking at refinancing your existing mortgage, as an option to determine if you are still receiving the loan that meets your requirements.

Refinancing is the replacement of an existing mortgage with another, this can be with a new or your existing lender. Refinancing can help reduce mortgage stress in a number of ways. 

Most homeowners choose to refinance their mortgage in order to lower repayments and save money. If you’re experiencing financial stress and your home loan has not been reviewed recently there may be an opportunity for you to save on your repayments by refinancing to a lower rate. It is of course important to understand the potential costs involved with refinancing and ensure that a more competitive rate will result in savings for you. 

If you are experiencing mortgage stress due to multiple different bills and debts to pay off, you could benefit from refinancing your home loan to consolidate debt. As your home loan is likely to have the lowest interest rate of other debts, by folding multiple high interest debts into one you may be able to reduce your overall monthly expenses. 

Mortgage stress solution #2: Mortgage deferral

If you have had a sudden change in your situation that has caused you to fall into mortgage stress, such as reduction or loss of income, you may be able to get assistance from your lender on your mortgage repayments. 

If you are struggling with maintaining your current repayments, some of our lenders may be able to offer you a repayment holiday for a period of time. A repayment holiday involves pausing your monthly repayments for an agreed upon amount of time. 

By deferring repayments, you’ll be given the opportunity to ease your mortgage stress by seeing a reduction in your total expenses. Although when deferring repayment you will continue to accrue interest and repayments will be capitalised. It’s important to keep in mind that by taking a repayment holiday the length of your loan may increase or your repayments will increase once the repayment holiday ends to make up for the additional interest.

While this option allows you to focus on your situation with confidence that your home loan is not falling behind, it is not a long term solution for serious financial woes. An alternative to deferring your repayments if possible can include using any redraw you may have built up. These funds can be used to make future payments for a period of time.   

Mortgage stress solution #3: Talk to a broker

We understand that everyone’s situation is different and some of these options may not be viable to you in avoiding mortgage stress. Therefore it is important to do your own research and get expert advice. 

If you’re feeling overwhelmed or concerned with your current mortgage repayments and believe that you are in mortgage stress, having an expert on your side can be the difference. So contact your local Mortgage Choice broker today to get expert advice on your situation and understand what options are available to you during these tough times.