Aug 25, 2021 10:09:53 AM

Stopping Mortgage Stress Before it Starts

Topics: Financial Health, Health and Wellbeing, COVID-19 0

Homeowners who commit more than 30 per cent of their after-tax income to paying the mortgage are likely to be feeling a form of financial stress known as “mortgage stress”. And with around 40 percent of all lending done to borrowers with debts that are five or more times their before-tax income*, as well as the ongoing economic impact of COVID-19 – including redundancy, reduced work hours, or illness – it’s not hard to see why mortgage stress is a growing concern in New Zealand.

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How to avoid mortgage stress

While factors like the cost of your home loan interest rates and living expenses are somewhat beyond your control, there are a few helpful ways to combat mortgage stress before it begins.

  • Live within your means: The easiest way to avoid mortgage stress is to not take on more debt than you can realistically afford in the first place. That means buying a home that fits your budget, with loan repayments you can comfortably meet. By being realistic about your spending, you’re ensuring your financial security comes first.
  • Plan ahead: By insuring your home, your life and even your income, you can plan ahead for the worst. So if you lose your job, or you’re unable to work due to illness or trauma, your family are taken care of, and your mortgage repayments can still be made so you don’t lose your family home.
  • Create a budget: Take control of your finances, track your spending, decide what expenses are necessary and what you can cut out altogether, and build in a buffer for an emergency fund that you can use when you need to pay unexpected expenses or if you’re temporarily unable to earn an income.
  • Refinance, refix or restructure your loan: If you find yourself struggling to make your home loan repayments, you may need to talk to a specialist who can help you decide whether you need to refinance, refix or restructure your home loan. Get in touch with a Mortgage Express branded mortgage adviser who can help you make an informed decision about your financial future.

What to do if you can’t pay your mortgage

If you find yourself experiencing mortgage stress, unable to make your home loan repayments, or you know you’re heading for financial trouble and potentially will be unable to make repayments in the near future, there are a few things you should do right away.

  • Talk to your mortgage adviser who can liaise with your lender to help you find a viable solution.
  • You may be able to apply for a mortgage deferral (mortgage holiday), extend your loan term, or switch to an interest only loan for a short time while you get back on your feet again.
  • Refinance your home loan to a lower interest rate if you’re not currently paying the lowest interest rate available to you.
  • Consolidate all of your high interest debt into a debt consolidation loan with a lower interest rate so you can pay back your debt faster.
  • If you’re left with no options, you may need to consider selling your home and moving to a more affordable location or downsizing to a smaller home.

Remember, not all options will be available so it’s worthwhile discussing your situation with your Mortgage Express branded mortgage adviser who can help steer you in the right direction. It’s also important to speak up as soon as you know you’re struggling or heading towards mortgage stress. That way you have time put a plan into place rather than having to rush any important decisions.

Get in touch today if you’d like advice pertaining to mortgage stress or mortgage repayments that you’re struggling to make.

 

* https://www.rbnz.govt.nz/financial-stability/financial-stability-report/fsr2015-11/debt-to-income-ratios-of-new-zealand-borrowers