How to avoid mortgage stress

Mortgage stress is the big word for 2008, and it’s generally defined as what happens to you if your mortgage repayment is more than 30% of your net income. So if you bought a home in Brisbane for $500,000, with a mortgage of $400,000, your weekly repayments would be about $775. If you want that to be under 30% of your net income, then you’d need to be bringing home over $2,600 a week, or $135,000 pa.

It is estimated that perhaps as many as 1,000,000 Australians are experiencing mortgage stress, and perhaps 80,000 of those will lose their homes because they can no longer meet their mortgage repayments. If you don’t want to be one of the statistics, you’re going to have to take some action.

Here are some tips on what you can do to avoid mortgage stress:

1. Speak to your bank.
   Banks can often work things out with you to keep you in your home if you chat with them early. Don’t leave it until it’s too late. Australian mortgage company Genworth Financial says that some solutions could include decreased repayments, interest only repayments for a set period, capitalising arrears on to the loan or repayment holidays (source: Rates ‘not biggest cause of mortgage stress’).
2. Put a detailed budget together.
   Work out where all of your money goes each week, and find out how much you are able to commit to a mortgage repayment.
3. Cut your expenses.
   Once you know where your money’s going each week, you can start to trim things down. For example, you could cut back on those extra things like dining out or trips to the movies in order to make enough available for your mortgage. Eat in, go cheap, and tighten your budget.
4. Try and increase your income.
   Either get a wage rise, or go and get a second (or third!) job. Mow some lawns, flip some burgers, tutor some local kids … whatever.

Everyone’s favourite finance commentator / morning TV show presenter, David Koch, has some tips to help you stay ahead of the interest rate rises. You might also like to take a look at “How to save your home” by Neil Jenman, and a report from Choice Magazine that outlines a few things you can do if you’re in mortgage stress.

Are you finding it tough to repay your mortgage? What steps have you taken to make ends meet?