What to do if you're suffering from mortgage stress


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Our insane appetite for debt and a ridiculously overpriced property market is putting a lot of Aussies in a very delicate situation, with mortgage arrears hitting their highest point in five years.

The number of Australian home loans more than 30 days in arrears rose to 1.62% in May, according to new data from ratings agency Moody's, while total national delinquencies are expected to continue rising throughout the year.

A home loan borrower is typically considered to be in mortgage stress when they are putting 30% or more of their pre-tax income towards their monthly repayments.

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When banks approve a loan they stress-test the repayments by assuming rates increase to around 7.25%.

However, as Otto Dargan, managing director of Home Loan Experts points out, people often take on other debts such as a car loan or credit card after they buy a home and then this gets them into financial trouble.

If you find yourself in mortgage stress there are several things you can do.

Most importantly, keep the lines of communication open with your lender. It is very hard to negotiate a repayment arrangement to save your home or even to get time to sell after the lender has obtained judgement.

The solution may be as simple as extending the term of your contract and reducing repayments.

Just be aware, though, that if your lender does not believe this will help your situation then they do not have to agree to the arrangement.

Other ways to get your mortgage under control include:

Ensure you're on the best deal

The cheapest standard variable rate is sitting at 3.44% according to RateCity data. When comparing this against the average standard variable rate of the big four banks (5.23%) that's a difference of about $500 a month in repayments on a $500,000 mortgage.

Move out or sell up

By renting out your home and living somewhere cheaper you may be able to manage your repayments. Selling is a hard decision but it's better to do it yourself rather than have the lender take over, as you're more likely to get a better price and avoid legal costs.

Apply to your lender for a hardship variation

This usually comes in the form of frozen repayments, frozen interest rates and or partial repayments. It is important to note that interest is still added your mortgage

Access your super

You may be able to dip into your super on compassionate grounds. The most you can get from one fund in 12 months is three months of repayments and 12 months of interest on the balance of the loan. Release is given only if your lender is threatening to sell your home and you can't pay the arrears any other way.

Obtain a mortgage relief loan

Governments provide assistance to eligible low-income families so they can buy and maintain their homes. In Queensland, for example, you can borrow up to $20,000 interest free. Not all states and territories offer this and eligibility requirements differ widely.

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Effie Zahos is editor-at-large at Canstar and a financial commentator. She is the author of A Real Girl's Guide to Money: From Converse to Louboutins, and a regular money commentator on TV and radio across Australia. In 1999, a background in banking Effie helped kickstart Money, which she edited until 2019. Effie holds a Bachelor's degree in economics.