10 things to consider when managing increased mortgage costs

An overview of what to consider when managing increased mortgage costs

Because of the recent interest rate rises, many Aussie homeowners are starting to feel the pinch as their home loan repayments increase.

While most lenders have hardship variation teams to help struggling borrowers navigate difficult periods, it’s always best to do whatever you can to avoid mortgage distress. So, if you feel like your home loan is starting to get away from you, we’ve pulled together a few strategies you can consider to help you manage your mortgage.

What is mortgage stress?

Have you ever wondered what happens when interest rates rise? Besides increasing your mortgage repayments, interest rate rises can also lead to mortgage stress.

The term ‘mortgage stress’ is typically used to describe a situation where a homeowner is struggling to keep up with their mortgage repayments. This often happens when a large portion of their income is dedicated to paying off their home loan, meaning they’re often not able to cover other essential expenses, like groceries, utilities, healthcare and education.

There are a number of different factors that can contribute to mortgage stress, including increasing interest rates, rising costs of living, over-borrowing and stagnant or reduced income.

If your bills are stacking up, you’re finding yourself needing to cut back on essentials or feeling anxious about financial pressures, you could be experiencing financial stress.

Things to consider to manage financial strain

Rather than waiting until you find yourself in serious financial trouble, it’s important to be proactive and take steps to help you manage your finances and alleviate financial pressure.

Here are a few strategies for reducing mortgage stress you might want to consider.  

1. Review your budget

If you’re concerned about your finances, it can help to understand your income and outgoings. Sit down and create a comprehensive budget that includes all of your income, expenses and debts. Once you have a good idea of what’s coming in and going out, you’ll be better positioned to identify areas where expenses can be reduced or your spending can be optimised.

2. Save for an emergency fund

Work on stashing some cash for a rainy day fund. Having an emergency fund not only offers peace of mind, but it can also be used to cover unexpected expenses, like medical bills or home repairs if and when they crop up. It’s a good idea to save at least 3-6 months' worth of living expenses. Once you’ve reviewed your budget, you should be able to easily work out what that figure looks like for you.

3. Avoid overspending

While it can be tempting to treat yourself to that second coffee or a new pair of gym trainers, it’s essential to avoid overspending and live within your means. Everyone’s financial situation is different, but it helps to be cautious when it comes to discretionary spending and large purchases.

4. Cut unnecessary expenses

Take the time to regularly review your expenses and look for opportunities to cut costs. This could involve negotiating utility bills, reassessing your subscription services or even finding cheaper alternatives.

But just because you’re watching your spending doesn’t mean you have to cut out everything you enjoy. It’s just about prioritising what’s important to you and being more conscious of your habits.

5. Reduce your debt

If you have high-interest debts, like credit cards or personal loans, it can often help to prioritise paying them off so you can free up your funds for other things, like your mortgage. Plus, having less debt can help to reduce financial stress.

6. Monitor your mortgage

Keep up to date with your mortgage terms, including interest rates and repayment schedules. Is it worth refinancing to a lender offering lower interest rates or better loan facilities? Consider whether it would improve your financial situation.

7. Diversify your income

Have you ever thought about turning your hobby into a side hustle? Now could be the perfect time! Explore opportunities to diversify your sources of income, like freelance work, part-time jobs or rental income if feasible.

Alternatively, you could consider approaching your current employer to discuss whether a pay rise is possible.

8. Negotiate with your lender

Most lenders don’t like to see their borrowers struggling. With this in mind, you might be able to negotiate with your lender to secure a better home loan rate. Alternatively, depending on your situation, your lender might be able to offer other forms of temporary relief, like extended loan terms or suspended payments.

Read our blog on hardship variations to learn more.

9. Explore refinancing options

If your lender isn’t willing to negotiate, you might be wondering how else to reduce interest on your home loan. This is where refinancing can come in handy. With so many different lenders and home loan products available, you may be able to refinance your current loan to a new mortgage that better suits your needs.

10. Seek professional advice

Last but not least, don’t be afraid to reach out if you’re struggling with your finances. Times are tough, so there’s no shame in seeking help when you need it. It doesn’t take long for financial troubles to quickly snowball into an even bigger problem, so it’s always best to be proactive and get help sooner rather than later.

Get in touch with your current lender and explain your situation. They should be able to work together with you to come up with a plan to tackle your finances. Alternatively, you can get in touch with a mortgage broker for tailored advice based on your circumstances. You can also reach out to the National Debt Helpline on 1800 007 007 to get free, independent help with managing your debt.

If you’re looking to refinance your current mortgage, check out what we have on offer at Unloan. From competitive interest rates, an annual discount and no Unloan fees* or penalties, an Unloan home loan could be just what you’re looking for.

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This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking independent taxation and financial advice before making any decision based on this information.

Unloan is a division of Commonwealth Bank of Australia.

Applications are subject to credit approval; satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000.

Unloan offers a 0.01% per annum discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.

There are no fees from Unloan. However, there are some mandatory Government costs depending on your state when switching your home loan. For convenience, Unloan adds this amount to the loan balance on settlement.

* Other third-party fees may apply. Government charges may apply. Your other lender may charge an exit fee when refinancing.