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A Banker Shares his Top 3 Tips for Avoiding Mortgage Stress

To find out how to avoid over-committing to a huge mortgage, we’ve sourced tips from someone who’s served time on the other side of the fence – in some of Australia’s biggest banks.

Mortgage stress has been in the news a lot lately. With Australian home prices surging more than 140% in the past 15 years, owning a home is no easy feat.

Young people are stretching their finances to buy into The Great Australian Dream and more of us than ever before are retiring with an unpaid mortgage.

According to Martin North, principal of research firm Digital Finance Analytics, one in four mortgaged households are already in stress — meaning they do not have enough income to cover mortgage repayments and other living expenses.

What you should be aware of

Over the past 12 months, there has been an increase in mortgage stress for people considered to be ‘at risk’ (which is based on the amount originally borrowed) and those considered ‘extremely at risk’ (based on the amount currently outstanding), new research from Roy Morgan shows.

In the three months to July 2016, 17% of mortgage holders were deemed ‘at risk’ (based on the amount originally borrowed). This increased to 17.3% in July 2017. Over the same period the proportion of mortgage holders deemed ‘extremely at risk’ (based on the amount currently outstanding) also increased from 12.4% to 12.8%.

Am I at risk?

One symptom of mortgage stress is being unable to make one or more repayments on your home loan – known as being in arrears. uno home loan adviser Carlo Monzo recently helped a couple through the uno platform who had found themselves in arrears. One applicant had recently lost their job, and they had some unsecured debts in the form of personal loans.

“They couldn’t catch up and their lender had given them a final notice that they were going to repossess the home,” says Monzo.

Monzo spoke to one of uno’s lenders, Pepper, who was able to refinance the couple’s mortgage and consolidate two out of their four debts.

“The unsecure debt they still have is very minimal – they can comfortably afford it,” says Monzo. “Plus the surplus that they have will continue to pay off these debts a lot quicker.”

Best of all? “They got to keep their home.”

What if I’m in mortgage stress and can’t make my repayments?

If you’re worried about mortgage stress, an insider tip from uno’s head of home loans, Jason Azzopardi, is to contact your lender and ask for a repayment holiday. Azzopardi, who has extensive experience working for Australian retail banks, advises that a repayment holiday allows consumers to take a break from repayments. A repayment holiday could be used if you’ve lost your job, find yourself in financial strife for another reason, go on maternity leave or would like to go on an extended holiday.  

Depending on the lender, you may be able to take a repayment holiday for up to six or even 12 months.

Taking a repayment holiday allows you to consider options like refinancing to lower your monthly payments to assist you to get back on track. If you’re already in arrears (i.e. you’ve missed a home loan payment), Azzopardi says it is difficult to find a lender who will refinance, therefore the repayment holiday is an important option should you find yourself in stress. Speak to a uno adviser to learn more.

I’m just scraping by. Should I be worried about mortgage stress?

If you’re worried about mortgage stress, you might like to consider refinancing to get a lower rate, suggests Azzopardi. If you’re on a less than a 30-year loan term, you might look at extending the term to 30 years (some lenders even offer 40 year loan terms).

It’s always a good idea to consolidate debts like personal loans and credit cards wherever you can, particularly if you have equity. Another option could be to switch to an interest only home loan, which will reduce your monthly payment in the short term, but isn’t a good long term solution, Azzopardi says.

Speak to a uno adviser to find out your options.

How uno can help

uno’s specialist technology, coupled with the expertise of our advisers, can help you find the best home loan for your circumstances – one that isn’t going to stretch your finances.

Even if you don’t already own a home and are thinking about buying in the future, it’s a good idea to be aware of mortgage stress and know how it is affecting more and more home owners.

When saving for a deposit, many people forget about factoring in the cost of stamp duty – the tax on written documents and certain transactions imposed by state and territory governments. uno’s stamp duty calculator lets you work out how much you’ll need on top of your deposit, depending on where you live and your circumstances.

If you’re worried about mortgage stress or have any concerns about your current home loan, speak to a uno expert about your options.

This information is general in nature and you should always seek professional advice when making financial decisions.

This information in this article is general only and does not take into account your individual circumstances. It should not be relied upon to make any financial decisions. uno can’t make a recommendation until we complete an assessment of your requirements and objectives and your financial position. Interest rates, and other product information included in this article, are subject to change at any time at the complete discretion of each lender.

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Hannah Tattersall worked as a journalist in Sydney, New York and Edinburgh before joining uno as its Content Editor. She has written for The Australian Financial Review, The Sydney Morning Herald, Qantas The Australian Way and In The Black, among other titles, and worked for 21st Century Fox and News Corp. She writes content aimed at buyers, investors, refinancers and anyone interested in the home loan process and welcomes feedback on how we can make uno's content better for you.

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