Managing mortgage stress as it gets tougher to refinance home loans

With the low home loan rates on offer, refinancing your mortgage could potentially help you lower your monthly repayments and manage your finances better.

How to manage mortgage stress

However, due to tighter lending conditions in the wake of the Royal Commission, Australian borrowers could face “tougher refinancing prospects” indicates the rating agency Standard & Poor (S&P).

“We expect lending standards for residential mortgages to continue to tighten, in the wake of the Royal Commission. While this will help to contain the growth in household indebtedness, it could affect credit growth and home prices,” states S&P in its RMBS Arrears Statistics: Australia report.
The agency predicts that borrowers with interest-only loans and higher loan-to-value ratio will find it most difficult to refinance in the face of stricter lending restrictions. The report says, “A slowdown in credit growth is also likely to affect refinancing prospects, which is a common way for borrowers to self-manage their way out of financial stress.” The good part is that more households are not expected to go into mortgage arrears due to high seasoning and the resulting equity build-up.

Managing mortgage stress

Did you know that Gen X is struggling the most to meet their monthly repayments, according to a recent survey?

Around three-fourths of the respondents in the survey undertaken by the market research agency Feedilicious did not feel confident about making their monthly repayments. A quarter of the respondents reported to be reeling under mortgage stress, with over 30 per cent of their household income applied towards servicing their home loan.

According to experts, borrowers can manage their home loan better by reviewing their interest rate as well as features, that could potentially help them get ahead of their mortgage.

However, with reference to S&P’s above mentioned report, it is clear that some borrowers might find it hard to refinance their mortgage in the future. Especially for interest-only borrowers who are nearing the end of their interest-only term, monthly repayments can jump by up to 30 per cent, putting them at the risk of financial distress, unless they have planned their repayments well in advance. Besides, with speculation about interest rates going north, it becomes even more important for home borrowers to plan their finances now to avoid mortgage stress in the future.

So, what can you do to avoid falling behind your mortgage in the future?

“Start by redrawing your household budget,” says Emily, a mortgage broker. She explains that the increasing cost of living is a concern for most homeowners. “Not knowing what you are spending could be one of the reasons that you are falling behind on your mortgage,” states Emily. “It is, therefore, vital to revisit your budget regularly and review your expenses to distinguish between needs and wants. Small changes such as carrying home-cooked lunch to work, brewing your own coffee, and ditching the Friday night movie for some cosy time at home with your partner could save you thousands of dollars that you could use to pay down your mortgage while the rates are still low.”

Remember, money saved is money earned, and any money you apply towards your home loan will help you build equity that will increase your net worth and stabilise your finances.

Did you know that you could borrow money against the equity in your home to fund your second home or open a line of credit to renovate your existing one? Speak to a mortgage broker to learn more about equity home loans.

Another idea is to negotiate a better rate with your lender. Even as the lending restrictions tighten, in view of your good repayment history and the relationship you have built with your bank over the years, it is possible to negotiate a lower rate or seek some discounts from your lender.

Emily suggests that in addition to throwing every extra buck at your mortgage when the rates are still low, it makes sense to speak to an expert if you think your present rate is not competitive enough.

A mortgage broker is a financial expert who can assess your situation minutely to find a better rate or features tailored to your financial situation and goals. A seasoned mortgage broker can also guide you on how to manage your mortgage repayments better to avoid mortgage stress in the future. You can speak to a HashChing verified mortgage broker online.

About HashChing

HashChing is an online mortgage marketplace that enables Australian homebuyers to compare broker pre-negotiated home loan deals from over 80 lenders across the country, promising greater savings, more choice, and unmatched customer service.

By Vidhu Bajaj,
HashChing Content Writer


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