How can we reduce mortgage stress

on July 22, 2021 / by Financial Mindfulness

How can we reduce mortgage stress.

Despite sustained, record low interest rates, repaying a mortgage remains one of the most significant financial stressors for many Australians.

According to Moody’s Analytics, 20 percent of all Australian households are said to be under mortgage stress in Australia.

Government figures record just over a third of Australian households has a mortgage.

Considering the size of those mortgages, it’s hardly a surprise that the debt stresses us out.

ABS data shows the average mortgage across Australia is $728,500.

In NSW, it is $939,700 and in Victoria, it is $785,000.

Types of mortgage stress

At this point, it is important to define mortgage stress.

Mortgage stress is a technical term describing spending more than 30 percent of income on mortgage repayments.

That is the type of mortgage stress Moody’s refers to above.

However, another type of mortgage stress goes along with the technical definition and is real and consistently impactful on people.

This is the mental and emotional pressure of financial stress caused by being fearful, even panicking, about what might happen if your household could no longer afford the current mortgage repayments.

Why does mortgage stress happen

In short, the size of mortgage debts – for many Australians, it is the most significant loan they will ever repay.

When households are squeezed into paying over 30 percent of income towards meeting mortgage repayments at a low-interest rate, even the merest hint of a change in interest rates causes physical and emotional stress.

Don’t forget how the emotional significance of owning a home – and the fear for some of losing one – it’s a heavy burden for a lot of hardworking Australians.

As interest rates have remained low, mortgagees have become used to their repayment levels, meaning any increase in interest rates will only exacerbate mortgage stress.

“I think what is important though to realise that whilst most people are currently coping with their mortgage repayments, there is still a lot of anxiety about the future with regards to possible interest rate rises, security of employment and property prices becoming unaffordable or property prices going backwards in the future,” said Hamish Ferguson, Director of Vision Property and Finance.

How can we reduce mortgage stress

There are several successful methods of reducing mortgage stress. They include:

1. Ensuring you are paying extra on your mortgage to build up a safety net or buffer which can be used when interest rates rise;
2. Fix your loan if you are worried about rates going up and only have a small weekly surplus to your budget. This way, you won’t have to concern yourself with increased repayments for the time frame you have fixed for; and
3. Review your expenses. Often when we are stressed, our level of comfort spending increases. We need to be aware of this and monitor our spending on those items that we tend to purchase when we are stressed. Eating out, TV subscriptions, buying gifts for ourselves or others, and upgrading items such as mobile phones, TVs, cars, and fashion.

How can we stop mortgage stress derailing our finances and relationships

What if we can’t eliminate our mortgage stress. How do we stop it from taking a heavy toll on our lives?

Perspective is so important. If we focus on the negative, on the difficulty of financial strain, then our relationships with money will remain challenging.

An example might be rather than saying ‘I don’t have enough money’. Instead, try to say, ‘well, at least I am still able to meet my commitments.

When it comes to relationships and money, transparency and openness are essential.

We can’t stress enough how important it is to ensure you are communicating with your partner and family and not bottling up worries and problems.

Being mindful of money goes hand in hand with good communication.

As we touched on, so much of the mortgage stress equation is about acceptable margins. Small changes – either way – in interest rates can have a significant impact.