Mortgage Stress: What does it mean and what can you do about it?

If rising interest rates have left you wondering how to make ends meet, you could be in what’s known as ‘mortgage stress’. But you’re certainly not alone.

2022 has unleashed a world of pain on Australian households, with the impact of rising food and fuel costs compounded by soaring rents and mortgage repayments.

More than two in five (42 per cent) households are currently thought to be experiencing mortgage stress, with many homeowners blindsided by the RBAs decision to increase the cash rate. Having expected an interest rate reprieve until at least 2024, those who bought in a booming market, and were at their financial limits even before the increases hit, could be catastrophically impacted by this ‘perfect storm’.

What is mortgage stress?

It’s commonly understood that mortgage stress is when your household is spending more than 30% of its pre-tax income on home loan repayments. When that happens, households can sacrifice everything to keep their dream of homeownership alive. Over the longer-term, that pressure – and the choices you’re forced to make – can have huge physical, psychological and social consequences.

While the current mortgage stress epidemic has been prompted by a series of interest rate rises, at an individual level it can simply be caused by circumstances. No matter what proportion of your income is being spent on repayments, if it’s a struggle to meet your obligations because of a job loss, rising expenses, a change in your living arrangements, or anything else, the end result is the same.

How do I know if I’m in mortgage stress?

At this point in time, only a proportion of Australian homeowners have experienced the impact of the repayment hike – a significant number still remain on a low fixed-rate loan. But with the majority of those due to expire in the next two years, a brutal repayment reality-check looms.

So, just how big a hit are we talking? Well, for homeowners whose fixed loans will expire in the middle of next year, the reserve bank estimates a shocking median increase of about $650 a month in repayments. That’s a jump of 45%.

Our advice? If you can see trouble ahead, prepare now, because when crisis hits, the time for preparation is over.

If that does happen, and you end up spending more on your house repayments than you can afford, you’re officially in mortgage stress. That might mean you’re left without enough money to meet your basic needs – struggling to afford things like groceries, heating or cooling, medical needs and transport for work. The equally distressing alternative is that you are, or are on the brink of, falling into arrears on your repayments, and are at risk of losing your home.

If you’re having trouble putting food on the table or servicing your home loan, are borrowing to make ends meet, or know that you’ll be in dire straits when your fixed loan period ends, the time to take action is now.

What can I do if I’m in mortgage stress?

If you’re here, looking for help, then you’re on the right track. Our team of Financial Hardship Advocates support hundreds of Australians every week.

When you call us, we’ll ask a few simple questions to understand your particular circumstances, including the full picture of your income, expenses, repayments and any debts. From there, we’ll work with you to develop a plan of action. That might include:

  • Contacting your lender’s hardship team – whose job it is to help customers struggling with their repayments – to see what they can do for you.
  • Looking closely at your household expenses– areas where you could cut costs or rein in the ‘nice-to-haves’ – to develop a realistic budget. Get started with our free budget planner.
  • Shopping around for better deals on utilities – electricity, gas, phone and internet. But do the whole sum, to make sure the ongoing costs stack up, beyond the ‘new customer’ incentive.
  • Identifying other sources of income, such as overtime or casual work.
  • Selling items you no longer need – everything from outgrown children’s toys and clothes to trading your vehicle in for something cheaper.
  • Considering a very short-term move to interest-only repayments on your mortgage, while creating a more sustainable long-term plan to get back on track. Always seek advice before going down this route.

If necessary, we can also connect you with a financial counsellor or other community organisations. Most importantly, you’ll always be in control of deciding which route you want to take.

Get help to overcome your debt today.

Can I refinance my way out of mortgage stress?

You can be in mortgage stress even while you’re still able to make repayments – the critical part is to take action before you fall into arrears. Once that happens, it can make refinancing much more difficult and expensive.

Refinancing effectively means taking out a whole new loan, usually with incentives like a lower interest rate, less fees or better repayment options. Subject to approval, you can choose to refinance with your current provider or a new lender.

That said, refinancing isn’t necessarily the best option. You need to look at the fees involved, costs such as Lenders Mortgage Insurance, as well as whether this is a true ‘fix’ or just a stay of execution for your financial problems.

Always seek professional advice for your individual circumstances.

What else can I do if I’m in mortgage stress?

When you’re suffering extreme financial stress, desperate measures can feel necessary. However, don’t assume that just because someone is willing to lend to you that it’s a good idea – some decisions just defer the pain, and can actually make things much worse over the longer term, including:

  • Using credit cards to fill a financial ‘gap’
  • Refinancing
  • Accessing superannuation
  • Buy now, pay later options

And while it’s important to explore opportunities for additional income or general cost-cutting, you need to be mindful of the impact on your wellbeing.

How can Way Forward help with my mortgage stress?

Way Forward is a not-for-profit organisation, which means that our service is free to use. We’re here to listen to you and provide support, with no vested interests and only one goal – to help you get on top of your financial challenges.

If we can’t help you directly, we’ll introduce you to someone who can. Most importantly, we’ll always act in your best interests.

While we’re completely independent, Way Forward is supported by the Australian Banking Association and the largest banks and creditors in Australia. What that means for you is, we can actually negotiate directly with your creditors to deliver a better outcome.

Contact our team of experts today, to end mortgage stress and find financial freedom.

Get help to overcome your debt today.


Where can I find help if I’m in mortgage stress?

Financial stress can feel overwhelming. If your mental health is being affected, please reach out for support. You can access free, confidential counselling 24/7 through Lifeline’s crisis support service on 13 11 14, or by calling Beyond Blue on 1300 224 636 or via online chat.

Otherwise, check out the Way Forward website, or contact our specialist teams, for information on the various support services available to you.

How can I prevent mortgage stress?

While life can always throw curve-balls, it’s important to set yourself up for success by never financially over-extending.

Don’t assume that just because a bank is willing to lend you a certain amount that you can easily service the loan. Work out how much you can realistically afford to make in mortgage repayments – assessing current expenses as well as building in contingencies for the unexpected.

While it can be tempting to stretch yourself for the perfect property, you need to balance the risks against the rewards – think about what you might have to sacrifice for that mortgage, and whether that lifestyle is sustainable or attractive over the long-term.

Beyond that, think about an emergency fund – a way to cover costs for a few months, in the event of ill-health or unemployment.

What happens if I can’t pay my mortgage?

  • In the first instance, your lender will contact you to notify that payments have been missed.
  • After that, you’ll be sent a default notice, which will outline how long you have to make the missed payment – usually 30 days.
  • By this point, if you haven’t already, reach out to Way Forward’s Financial Hardship Advocates or talk directly to your lender about a hardship variation of repayments.
  • The bank will usually do all it can to help you but, if they aren’t able to assist, then the next step is likely to be selling the property. This can be done voluntarily, where you are able to retain control of the sale process, or via legal process where the bank seeks to take possession of the property to sell it in order to repay the loan.

It’s worth noting that if the sale of the property results in a shortfall on the loan amount, you remain liable for the amount owed to your lender, including interest, costs and fees.

What are the outcomes of working with Way Forward? 

Around 2.4 million Australian adults are ‘struggling’ to meet their day-to-day financial commitments, leaving personal finances the most significant cause of stress in Australia.

Way Forward will help you to explore options for getting out of debt that don’t include bankruptcy or Part IX Debt Agreements.

Get help to overcome your debt today.

How can Way Forward help?

At Way Forward, we cannot provide financial advice, but we can help manage and reduce your debt.

We’re a completely free service and there are no hidden fees or costs. Our dedicated team of professionals are funded by some of Australia’s leading financial institutions, allowing us to help you find your way forward, faster.

How Way Forward can help in simple steps:

Step 1: Reach out to our team

Step 2: We evaluate your circumstance and verify your financial situation

Step 3: We take over negotiations with your creditors and act on your behalf

Step 4: We put together a manageable plan and combine your repayments to one reoccurring payment across your creditors

Get help to overcome your debt today.