*iSelect is the trading name of iSelect Mortgages Pty Ltd (ABN 86 148 217 181). iSelect Mortgages Pty Ltd is a credit representative (Credit Representative 400540) of Auscred Services Pty Ltd (Australian Credit Licence 442372). iSelect provides a referral to Lendi Pty Ltd, a Credit Representative of Lendi Group Finance Pty Ltd (Australian Credit License 442372). iSelect Mortgages Pty Ltd receives a commission from the Licensee for each new customer account created and for each home loan submitted through this service.
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Mortgage stress is a situation that no homeowner wants to find themselves in. Beyond creating pressure to meet repayment obligations, mortgage stress can also leak into your personal life, impacting your physical and mental health.
David Hyman, co-founder, and CEO of Lendi Group breaks down what mortgage stress means, why it’s a big problem, how to manage it, and how to avoid it in the first place.
With Australian property prices higher than ever and interest rates likely to keep rising from the historic lows we’ve seen; some borrowers may find themselves overextended or in mortgage stress.
Mortgage stress can mean a few different things, depending on your individual circumstances but in general terms, mortgage stress occurs when a household spends over 30% of their pre-tax income on home loan repayments.
Mortgage stress isn’t something that just affects low-income borrowers; high income borrowers can be at risk too. It’s important for all borrowers to understand the options available when structuring their loan, so they can best safeguard themselves against the impacts of moving interest rates as well as expected and unexpected changes to their expenses which may add strain to the household budget.
Mortgage stress can occur due to several different reasons including:
Mortgage stress can become a serious problem when borrowers are unable to make their repayment or meet other obligations. Once you are in the territory of missed or late repayments, the avenues available to restructure your debt start to shrink.
Enlisting the help of a mortgage broker both before taking on new debt and regularly during your loan term, can help you understand how you could structure your loan, taking into consideration both the current environment and your future plans.
Mortgage stress can be avoided with a well-planned-out home loan and a rational approach to borrowing. There are a few steps you can take to avoid mortgage stress, which include:
If you’re starting to feel the pinch, it’s better to be on the front foot and explore your options sooner rather than later. Borrowers with a good credit profile, have more options and better rates available to them. Some proactive steps borrowers can take before getting into mortgage stress include:
If you’re experiencing mortgage stress and struggling to make repayments, options available include:
Keeping on top of your home loan is important for all borrowers not just those heading towards or experiencing mortgage stress.
The benefits of refinancing include consolidating your debts, making sure you are only paying for loan product features you actually use and ensuring you’ve got a competitive rate. Afterall, it’s no secret that lenders charge existing customers higher rates than what they offer to attract new customers.
On average, Lendi owner occupier customers who refinanced this year reduced their yearly repayments by more than $2,000 – that's a significant saving which can help ease the strain.
Refinancing is the replacement of an existing mortgage with another. When you refinance, you can refinance with your existing lender, or you can move to another lender.
Sometimes it’s easier to stay with your existing lender, but if their home loans and rates aren’t competitive enough, it could be time to move on.
The process of switching to a new lender may sound like a hassle, but it’s a relatively straightforward process, especially with the help of an expert, and most of it can be done online via a platform like lendi.com.au.
When it comes to choosing the right home loan, it’s worth keeping in mind that there’s no one-size-fits-all solution and it’s a matter of finding the right loan for your particular needs.
When your new loan is approved, your old bank will be contacted and informed that you will be switching lender and asked to organise for the loan to be discharged. From there, you’ll authorise the discharge and a settlement date will be set between the lenders at which point your new lender pays out your old loan and you begin making repayments on your new home loan.
If your loan repayments are getting out of control, talk to someone who can help you understand your options. Contacting your broker or lender is a good starting point, as they will be able to provide you with range of options to meet your individual circumstances.
You can also use the Australian Banking Association's financial assistance hub to find your bank's contact details and understand what options are available.
At iSelect, we’ve partnered with Lendi who make the process of comparing home loans online seamless and straightforward. Click here to compare home loans today or give Lendi a call on 1300 186 260 (08:30-18:30).
Last updated: 15/03/2022