Struggling with your mortgage repayments? Here’s what you can do

Here are 5 tips on how you can get back on track with your home loan

04 July 2022|6 minute read

woman looking at paperwork

It’s a tough time for homeowners. Australia’s housing prices are at an all-time high and rising interest rates are making it harder for borrowers to pay off their mortgages.

If you’re struggling with your mortgage repayments, you’re not alone. But, it’s important to act fast to keep your loan in a healthy position. 

In this article, we take a look at why more Aussies are experiencing mortgage stress. We also discuss what you can do if you’re struggling with your repayments and 5 tips for getting your home loan back in shape.

Why are more Aussies struggling with their mortgage repayments?

It comes as no surprise that more Aussies are having trouble with their mortgage repayments. 

Even before the first rate rise in May, 1.5 million Aussie households were experiencing mortgage stress1, with 42% of households experiencing financial stress in March 2022.

Why is this happening? A few contributing factors include:

  • Housing affordability is at an all-time low – as of March 2022, the median Australian dwelling value is estimated to be 8.5 times the annual household income2
  • Home loan amounts are at an all-time high – between April 2020 and February 2022, house prices increased by 24.6%. In January 2022, the total outstanding housing credit sat at a record $2 trillion3
  • Interest rates are increasing – the cash rate is predicted to reach up to 2.5%.4

What can you do if you’re struggling with your mortgage repayments?

If you’re experiencing mortgage stress and don’t think you’ll be able to make a repayment in time, there are several steps you can take.

Mortgage stress is defined as a struggle with home loan obligations that causes strain on household finances.

Typically, borrowers who spend over 30% of their monthly household income on mortgage repayments experience mortgage stress.

In a March 2022 study, it was revealed that on average, 41.4% of a borrower’s income is needed to pay off a mortgage.5

The earlier you ask for help, the more options you'll have to put yourself in a better financial position.

1. Contact your lender 

If you’ve missed or feel like you are going to miss a repayment, it’s important to let your lender know you’re struggling with your home loan obligations. 

They’ll be more understanding of your situation if you keep them in the loop and will try to work with you to find a suitable solution.

It can become more difficult to negotiate with your lender if you’ve already missed multiple repayments and have failed to get in contact with them.

It’s important to let your lender know if:

  • You recently lost your job or have experienced a decrease in your income
  • You’ve been diagnosed with a medical condition 
  • You have sustained an injury or illness that is preventing you from working
  • You’ve been affected by a natural disaster
  • You’ve had a divorce or split from your partner
  • Any other reason you could be struggling with your home loan repayments.

2. Ask your lender about their financial hardship options

If your financial situation is quite serious and you’re likely to continue missing multiple repayments, your lender may suggest you apply for one of their hardship options.

It may help to get advice from a financial advisor so they can guide you through the process and provide recommendations on which options might work best for you.

These solutions were created to help borrowers get back on track with their home loan obligations. They may only be offered for a certain period of time, for example, 3-6 months.

Hardship options can vary between lenders, but they typically allow you to pause your repayments for a period of time or temporarily pay a lower interest rate. 

Different solutions may be offered to you depending on your personal circumstances, the nature of your hardship and how long you’re expected to be affected. 

You can apply for financial hardship by following these steps: 

  • Contact your lender and ask about their financial hardship options
  • Provide details about your home loan i.e. your account name, number and repayment amount
  • Let your lender know your home loan repayments are or will be affected by a financial hardship
  • Provide details on why you’re struggling with your repayments.  

You should get a reply from your lender within 21 days. If they ask for more information, they should respond to your reply within 21 days.

3. Get financial help from an expert

If you’re in a tight spot financially, it makes sense to speak to a financial advisor.

While a mortgage broker can provide guidance on your home loan, a financial advisor is qualified to give you financial advice important for long term financial wellbeing.

It might be helpful to review your budget with your financial advisor and create an actionable plan that can help relieve any financial burden or stress you may be experiencing.

If you’re struggling with your repayments and are unsure why, a financial advisor can also help you identify the root cause.

4. Sell your property

Although this option may be the last resort, it's important to remember that you have the option to sell your home.

If you can no longer keep up with repayments, you’ve exhausted all other options or you’re in a place where selling your home is a viable option, it may be a good idea to chat to a financial advisor. 

Provided you don’t have negative equity in your home, selling your property can grant you financial relief by letting you pay off your mortgage in full.

After selling your home, you might want to think about downsizing and purchasing a home with a lower price tag or buying a home in a more affordable area.

5 tips to get back on track with your home loan repayments

1. Negotiate a lower interest rate

Rates are on the rise this year, so it may be difficult to find a rate as low as what was on offer in 2021. But, it may be worthwhile comparing rates and checking that you still have a competitive deal.

Often lenders will charge their existing customers ‘loyalty tax’. This simply means that you may not be offered a rate as low as what’s being offered to your lender’s new customers.

It won’t hurt to ask your lender to lower your rate to match the one that’s being offered to new borrowers. You can even ask your mortgage broker to do this on your behalf.

2. Switch to a cheaper home loan product

If your home loan is charging high fees or you’re paying for home loan features you aren’t using, it might be time to switch home loan products.

For example, you might be paying hundreds of dollars a year for an offset account, but you direct all your savings to your other investments. In this case, it might be cost-efficient to close your offset account and avoid the recurring yearly fee.

Some lenders offer low fee or zero fee home loans, which may be a better option for you. Keep in mind that these loans may factor the additional costs into the interest rate.

It’s important to calculate where you’ll make extra savings and whether this will lead to a financial win or loss. 

3. Consider fixing your interest rate

If you’re a borrower who likes the idea of consistent repayments, you might want to look into getting a fixed rate home loan.

A fixed rate home loan lets you lock in an interest rate for a specific period of time, typically from 1-5 years. 

Over the fixed period, your home loan repayments will stay the same, regardless of whether the cash rate increases or decreases.  

Keep in mind that because rates are rising, many lenders have already factored in the predicted future rate rises into their fixed rates. 

So, it may be useful to chat to a mortgage broker about the pros and cons of fixing your rate and whether it’s a good option for you. 

4. Find ways to cut back on your expenses

Keeping up with your mortgage repayments might become much easier if you’re able to find ways to cut down on your spending.

Cutting down on unnecessary spending is a great way to save money. For example, you might cook more meals at home instead of eating out. Planning your weekly meals and exploring new recipes can help make the transition easier.

Finding ways to cut back on necessary expenses, like finding a cheaper internet, gas and electricity provider, can help free up cash flow.

5. Consolidate your debts into your home loan

If you have multiple loans, like a car loan, credit cards and personal loans, it could be financially beneficial to consolidate these debts into your home loan.

A debt consolidation loan allows you to streamline your debts into one easy monthly repayment. 

Plus, you’ll be able to pay your loans off at the same interest rate that’s on your home loan. Home loan interest rates are typically much lower than rates on unsecured debts like personal loans or credit cards.

Looking for more ways to save? Speaking to a mortgage broker can help you get back on track with your home loan repayments. If you ever need home loan help, just reach out and an Aussie Broker will be in touch

Book a chat with an Aussie Broker

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