Feeling under the weight of your mortgage repayments? Home Loan Finder's Jeremy Cabral offers four tips for curing mortgage stress
Despite healthy economic conditions, more than a third of mortgagees suffered mortgage stress in the last 12 months, according to HomeLoanFinder.com.au.
One of the reasons Aussies are feeling the pinch is that businesses have reacted to the global financial crisis by driving their own productivity gains.
More than 10% of Australians attribute their mortgage stress to the fact that they’ve been forced to take a pay cut recently.
Meanwhile, 15% of families say they’ve had some months when they didn’t know if they would make their repayments – an ominous sign considering interest rates are near historical lows.
For those struggling with a mortgage, here are four tips to keep your mortgage healthy:
1. Create a budget
It is human nature to underestimate our expenses. Address this with a budget. It is easier to understand the cost of your necessities and extras when they are properly measured and written down.
Armed with your budget, decide which extras can be realistically trimmed-back or cut altogether. Remember that an ideal budget will have both leftover funds for savings (for emergencies and predictable expenses) as well as additional mortgage repayments.
2. Meet with your bank
Contacting your lender is the first point of call if you think you might miss the next mortgage payment. Lenders aren’t the angry debt collectors that people perceive — they are obligated by credit laws to support borrowers in financial hardship and work with them towards a plan to get them out of the red.
Asking for a hardship variation can often result in a temporary relief from repayments or reduced repayments and help to get your finances back on track.
3. Temporarily change how you pay your home loan
For mortgage holders whose credit rating has taken a knock recently, it may be worth holding off refinancing. A lower credit rating will usually mean that you’re considered a higher credit risk and you may have to pay a higher interest rate if you switch home loans.
As an alternative, you can switch your repayment type to interest only, if it is offered as an option on your home loan. This will reduce your monthly repayments, giving you temporary breathing room to regather your financial situation. Once you’re back on your feet, return to principal and interest repayments so that you begin to pay down the debt again.
4. Shop around
Look at all your options and do your homework. Research online to compare home loans and find yourself a better deal.
Once you’ve found evidence of better offers on the market, contact your lender. See if they can match the best rates or some of the interest rate difference between your loan and the market leading ones.
If your lender doesn’t want to pass on a lower rate to you, it is up to you to move. If you’re eligible for a more competitive loan and the costs of switching don’t outweigh the potential savings — a switch to a lower interest rate could be favourable.
This article was supplied by Jeremy Cabral, personal finance publisher ofHomeLoanFinder.com.au, a website aimed at helping people find a better deal.
