Know the mortgage stress before getting one

Australia is a beautiful destination to reside in! So why not invest in the Australian property wisely without tangling yourself in any kind of mortgage stress. But before that, one needs to have a clear and wide scenario of mortgage stress.

What is mortgage stress?

Mortgage stress is a definite form of financial stress. If you are spending more than 30% of the after-tax income on home loan repayments than it’s surely a situation of mortgage stress. Nearly three in five Australians are struggling to make repayments, despite low mortgage interest rates.

According to Homebuyer confidence index higher cost of living, unemployment, other debt obligations, illness, and multiple loans seem to the main concern inclining mortgage stress.

Signs showcasing mortgage stress include a feeling of anxiousness, frustration, and pressure. The situation confronts when you are left with no savings or little savings or you run out of cash before the payday or rely heavily on the credit cards to pay off your debt. The scenario and situation can be anything for mortgage-stress.

Take a quick mortgage stress test

  • Do you pay more than 30% of your pre-tax salary to your home?
  • Pay all of your salaries to cover your interest rate?
  • Struggling to cope with utility bills?
  • Constantly use a credit card to sustain.
  • Regret buying any stuff by the end of the day.

If every answer to this question is ‘yes’ than mortgage stress is definitely on your way. The mortgage stress directly concerns the ability to pay the mortgage for you for it’s the largest spread debt which can last up to 25 years. And a lot can happen with fluctuating interest rates and on-going inflation.

The inclining status of mortgage stress in Australia

Mortgage stress in Australia is rising as the price of the property is sloping high while the wage growth remains the same. The loan amount which Aussies are pulling out is more than their lifetime annual income. Due to which they are stuck as they fail to cover the generic or basic cost of living.

Dwelling prices in the capital city

The irony is pretty much clear. The interest rates are at the lowest while the property prices are inclining in several states of Australia.

City Dwelling values in % Dwelling values in ($)
Canberra -0.4% $625,000

 

Sydney 0.8% $880,000
Melbourne 1.5% $675,000
Darwin

 

-5.2% $480,000
Hobart -1.3% $355,000
Perth 0.1% $484,000
Adelaide -0.2% $440,000
Brisbane 0.5% $497,200

Source: CoreLogic, May 2017

Avoid the intensive mortgage

Borrowers are day by day getting strangled to intensive mortgage stress and there is a number of factors contributing to it. According to the Genworth Homebuyer Confidence Index, unemployment, high-interest rate, additional debt obligations and high cost of living are a few of the factors.

So how do you cope with it? We have listed a few most approachable tips that can somewhat assist an individual from falling into an intensive mortgage.

  1. Make a budget for expenses – Do not spend more than the actual spending if you are planning to buy a property or if you have bought one to avoid future mortgage stress. Search a home with easy due payments. Don’t go for luxury to invite financial stress.
  2. Get ready for the worst – If you are certain that you too may be a victim of mortgage stress create a backup plan. It’s important to have income protection insurance in case you fall ill, or unemployed.
  3. Reconsider the plan of buying a property – Re-think, your plan. If you are comfortable with the current position and purchasing property means adding a layer of financial stringent then go with the plan of not buying it.

However, if you have already thought of buying a property make sure not to pay more for the mortgage than you can handle.

Writer : Pabitra Dhakal

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