It’s easy to become fearful, stressed, and panicked in the current rising rate situation all mortgage holders find themselves within. As the RBA continues to battle inflation, mortgage holders on variable interest rates continue to suffer financial pain as their monthly expenses skyrocket.

Tie rapidly rising interest rates in with the cost-of-living crisis. We’ve got a situation that can lead to financial and mortgage stress.

Our team at MAW Money decided now is a better time than ever to share some practical tips on how homeowners can minimise mortgage stress (especially those who have never experienced interest rate rises).

Before we get into it, it’s worth looking at what mortgage stress is defined as. This may give you some clarity on whether or not you sit within the stress parameters and also allow you to take actionable steps to avoid getting there.

What is mortgage stress?

Simply put, mortgage stress occurs when more than 30% of your pre-tax monthly income is put toward mortgage payments. Figures from Digital Finance Analytics revealed that 1.52 million households in Australia were in mortgage stress at the start of May. That’s around 38% of households experiencing mortgage stress – so you’re not alone…

How can I avoid mortgage stress?

If you find yourself in this zone or think you’re heading there, we’ve got some actionable steps you can implement to start working through this situation (and hopefully get to the other side when rates stabilise and do eventually come down). Getting yourself out of mortgage stress will take time, commitment, and resolve – however, if you practice it daily, it will become a habit and one that you’ll be thankful for in the end.

1. Give your mortgage a health check – When was the last time you assessed your loan? Has it been a few years? It’s always important to ensure your current mortgage solution is the right one for you – engaging a broker (like MAW Money) to look at your current product can give you visibility on if your lender is giving you the best possible rate (and package). Remember, banks don’t reward loyalty – keep them honest – you might be able to negotiate a better rate, or if not, refinance elsewhere!
2. Do your budget again and cut debts/expenses – The RBA is raising rates to curb consumer spending! Now is the time to look at your budget and cut the fat. Are there things you’re paying for that you can do without or do not need? Cutting unnecessary expenses (gym, streaming, eating out etc.) is a quick and effective way to reduce your monthly outlay. Spend time refining your budget, and always take the time to adjust it and adapt it as your situation changes. Remember, your budget will always be fluid with unexpected expenses popping up here and there – be disciplined with your spending, but always make sure you have a buffer should the unexpected situation arise.
3. Use an offset account – Do you have savings in your account, and are you using your savings to offset your interest via an offset sub-account? Most lenders will offer an offset facility whereby you can offset your loan amount with your savings. For example, if you have borrowed $500,000 and have $50,000 in your offset account, you’ll only be charged interest on $450,000. Always make sure your money is working for you!

These are just three quick and actionable steps you can begin implementing now to reduce your monthly expenditure and, as a result, reduce your exposure to mortgage stress!

Now is the time to get in touch with us to ensure you get a fair deal from your bank. Contact us today, and let’s make sure your loan product is the right one for you and, at the same time, keep the banks honest.