Throughout the years, the number of Australian homeowners suffering from mortgage pain is ever increasing. With that said, now is the perfect opportunity for would-be property buyers to find out if they’re prepared to handle a large debt. No one wants to deal with long-term mortgage stress and while most of us are going to experience it at some point, there are a couple of ways we can mitigate it and avoid letting it control our lives.

If you’re planning to take on a mortgage loan, you can minimise the stress by implementing these simple, value minded steps to protect yourself from long-term mortgage pain. Alternatively, speak with a leading debt advisory firm in Australia who can give you all of the necessary advice you need.

How Australians struggle with mortgage stress

Even though bank lending practices have witnessed dramatic changes due to the Banking Royal Commission, studies show that mortgage stress in Australia is still rising. Digital Financial Analysis (DFA) conducted an independent research and found out that more than one million households (which equates to roughly 31.6% of owner-occupied homes) are struggling with mortgage stress, with Western Australia having the largest percentage of households that are 30 days behind on their mortgage payments.

Relying on a loan calculator simply won’t help you determine what level of mortgage you can comfortably afford. In order to protect yourself from this kind of problem, it’s crucial that you do some self-testing based on your cash flow and spending habits.

  1. Don’t let pre-approval take hold of you

It can be easy to get carried away when a bank loans you up to $500,000. While the pre-approval process may seem exciting, you shouldn’t allow it to dictate your spending habits. First, identify what type of property you need, where you want to live, and how much you can comfortably afford without going all-in. It’s these factors that you should weigh considerably when searching for the right property.

Most people make the mistake of letting the pre-approval blind them and they end up going over the pre-approval amount. Ideally, the property you’re looking for should be under the pre-approval amount. Otherwise, you’ll have to re-evaluate your options and prioritize your needs vs. your wants.

  1. Live life as if you had a loan

Part of preparing for a mortgage is experiencing life like you just had a loan. What this means is simply working out the repayments on the loan you want to get and setting that aside into a savings account. From there, you should try and manage your expenses in terms of living costs, money spending, and savings. You can even use the money you’ve saved as part of a deposit for a home. This strategy will help you develop good financial management and keep mortgage stress at bay.

  1. Buffer zoning

To test yourself out for loan repayment, take a look at your expenses and see if there’s enough room for additional savings. This provides you with a buffer for interest rates, unplanned events, and the like. You don’t want to go all-in and live from paycheck to paycheck without having the necessary funds to cover you from sudden and unexpected expenses.

  1. Don’t get tricked by mortgage insurance

Mortgage insurance is often misunderstood by a lot of people by thinking that it protects the loan applicant. Keep in mind that investors and lenders are the ones that receive compensation from mortgage insurance when you default on the loan. It’s up to you on whether you want to save up on a bigger deposit to avoid insurance costs or re-evaluate the house you’re looking to buy.

  1. Use a budgeting tool

Most people underestimate their expenses which can steer you off-track and amplify mortgage stress even further. To avoid this, consider using a budgeting tool to monitor your expenses. That way, you can paint a bigger picture of your financial situation and make it easier to service your monthly payments.

For example, you can use a spreadsheet and enter everything you spend for the next 3 months. Categorize the expenses so that way, you know where your money is going. In another spreadsheet, create a budget that will allow you to pay your mortgage comfortably while leaving 10-20% of your salary for emergency expenses. From there, you can compare the two spreadsheets and see if there’s enough room to make cutbacks and save more money.

Purchasing a home is one of the biggest decisions you will ever make. It involves a lot of thinking, planning, and preparation which is why you should take your time and ready yourself financially, emotionally, and mentally. These tips will help you avoid mortgage stress and avoid the life-long consequences of defaulting on a loan.

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