The federal government and banking sector have thrown everything they can at home owners during the pandemic to prevent widespread mortgage stress across the community.
But when the music stops after six-month home loan holidays end, it’s likely some borrowers whose livelihoods have been affected by the pandemic economic shutdown still won’t be able to meet their repayments
If you’re worried that might be you, there are things you can do right now to relieve your stress and keep a roof over your head. And if you’re about to buy your first home, it’s important to establish good habits right from the time you take out the loan to make the home ownership process as easy as it can be.
Often people opt for package home loans that include features like credit cards and transaction accounts. But online finance portal 86 400’s lending product lead Melissa Christy recommends asking yourself if you really need the products that make up the package and reading the loan documents’ fine print closely before agreeing to anything. “Don’t get stuck paying for something you don’t need,” she says.
The less you owe, the less interest you have to pay. “So I strongly recommend making additional payments when you’re in the position to do so,” Christy says. This is because getting ahead where you can helps eliminate mortgage stress in the future.
Most people get so caught up in reducing their expenses or getting a cheaper rate, they forget about looking for ways to lift their income, says financial adviser and mortgage broker Chris Carlin from Master Your Money Now.
“Start that side business, sell those items you don’t use around the house and study to get that extra qualifications. Do whatever you can to look for ways to increase your income.”
Many people get into mortgage stress because they can’t work due to injury or illness. But the last thing you want to worry about is paying your mortgage if you get cancer, have a stroke or are in a car crash. So put safeguards like life, trauma, TPD and income protection insurance in place so you’re protected in the event that you suffer a catastrophe.
Carlin says a lot of people buy a big family home at the expense of creating wealth outside this asset. This means they can’t build an investment portfolio to supplement and replace their income when they retire.
“It is far better to buy a small family home and a couple of investment properties or a share portfolio than own one big family home which is sucking all your income,” he says. “It can also make more sense to rent a million-dollar home than own it, the mortgage for which can be very stressful to pay and prevent you from living the life you want now and in retirement.”
This gives you peace of mind so that if you lose your job, you know you have the mortgage covered for a period.
Putting this money in an offset or redraw account can also reduce the interest you pay and help you pay off the mortgage faster.
After purchasing their first home, most people end up buying new furniture and renovating parts of the house, incurring unnecessary moving expenses and even buying a new car. But this can contribute to mortgage stress down the track.
“Your disposable income available for repayments will take a hit if you increase liabilities that were not there before taking out a mortgage,” says Archer Mortgage Group finance broker Jasjeet Makkar.
“We advise clients to avoid jumping into more debt just because they can. Give yourselves 12 months to get used to making your repayments, get ahead by making additional payments or increase your savings before taking on any more debt. As much as we love writing more loans, we would rather write loans that people can repay without coming under any stress,” he adds.