Overextending ourselves to get our dream home

We would like to believe that lenders have our best interest at heart, but where money is involved, there is only one person who knows what’s best for you – you! Mortgage stress is a great concern for an overwhelming number of Australians as they financially over-extend themselves to get their dream home.

The responsibility really does come down to you. It’s vitally important to look at your income and take into account any changes that might affect your income stream in the future, factor in interest rates rises and consider the type of lifestyle you want to live while paying off your home loan. You might be able to pay over 30% of your income on your mortgage repayments but will you be living a fulfilling life or submerged in mortgage stress?

What is mortgage stress?

Mortgage stress is a financial term used to describe a recommended loan repayment ceiling, whereby borrowers, as a rule, shouldn’t pay more than 30% of their pre-tax income on their home loan repayments, or they will risk falling into financial difficulties if unforeseen circumstances, called life, affects their income stream.  

No one can predict what the future will hold but being cautious, thorough and well-organised from the outset, while trying to avoid mortgage stress, will help you be better prepared for the unknown.

Tips to avoid mortgage stress

• Think with your head and not with your heart when making financial decisions.
• Be realistic: We all want a million dollar property overlooking the ocean but being able to eat is more important.
• Calculate home loan repayments and consult an expert so you know exactly what your repayments will look like.
• Think about your future: This is a long-term commitment so if you’re considering taking a year off to travel Europe, changing your job, or about to start a family, this needs to be calculated into your financial plan.
• Shop around for the best home loans and ask the hard questions about defaulting on repayments and interest rate rises.
• No one understands your budget and spending habits better than you do, so tell your lender how much you want to borrow, not how much they want to lend you.
• Don’t stretch yourself so far that you can’t save money to enjoy the finer things in life.

To get an idea of home loan options and to work out repayments, use RateCity’s home loan comparison and mortgage repayment calculator tools.

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