How to reduce your mortgage stress

Property owners have a love-hate relationship with their mortgage.

When interest rates are low and they're ahead of their repayments, having a home loan can be relatively stress-free.

But due to life's unpredictability, the smallest change can send them into the doldrums.

On average, Australians have a relatively high rate of mortgage stress.

A study by Finder shows that property owners in capital cities use around 29% of their income to cover their repayments, which is just on the cusp of the industry's maximum recommended repayment proportion. Mortgage stress is especially likely for first-home buyers, who contribute an average of 30% of their income towards repayments.

Taking time out in the beginning to tailor your home loan to best suit your budget can help you avoid those dark times.

The community banking service act. has a few tips to help you pay off your home loan quicker and with less stress:

Make extra repayments

If you can, avoid interest-only loans.

The more of the principal you pay, the more you'll save on interest and the faster you'll pay off your mortgage.

Adding an extra $100 a month to your home loan amounts to an extra $1200 a year which, if you keep it up, could result in a mortgage paid off years in advance.

Reduce your loan term

You might believe that a long-term loan is helping you financially by allowing you to make smaller repayments every month.

But while you're saving more on your repayments, you're paying more in interest over the long term. If you can, consider shortening the term of your loan, and try to commit more of your savings to the mortgage.

Save a bigger deposit

This one will be a little bit difficult for some of today's first-home buyers, considering the astronomical prices of property in Sydney and Melbourne.

The going rate for most deposits is around 20%, but if you can manage to save any more it would be ideal.

Essentially, the more money you borrow, the more you end up paying in interest over the life of your loan. Do some research on the government subsidies available in your state, and apply for any relevant ones before you commit to buy.

Use an offset account

An offset account is a savings account linked to your home loan, which can be used to offset the balance of your home loan.

Interest earned by the offset account goes directly towards paying down your home loan interest, which means you won't have to pay any tax on your savings. This is a great way of streamlining the repayment process, as it requires minimal effort and has tax advantages.

Fix your loan

If you're worried that interest rates are going to skyrocket in the near future, you could consider fixing your loan.

While you will have some security against interest rate rises, fixed loans may not allow you to make extra repayments, so you should evaluate whether it will be worth it. Instead, you could split your loan to be 50% fixed and 50% variable, which can help you to achieve the best of both worlds.

Opt for a no-frills version

Much like mobile phone plans, the most basic options on the market can save you money by restricting your access to bells and whistles.

Some no-fills home loans advertise interest rate as low as 4%pa, which can be great for families looking for a constant low rate. If you're going to pick a basic option, you should evaluate whether it's worthwhile going without extra repayment options or an offset account.

Negotiate

These days, financial institutions are so competitive they try very hard to secure your business.

If the terms of the loan don't suit you, try negotiating with your lender. Some places waive establishment fees and valuation costs, which is worth investigating if you're a first-home buyer.

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