How to: Manage mortgage stress

How to: Manage mortgage stress

Jennifer DukeDecember 16, 2014

Mortgage stress is one of those difficult situations that no one wants to face. For new buyers, and even experienced property owners, the thought of being in a scramble to afford your repayments understandably evokes a significant amount of fear.

If you are facing mortgage stress, the harbinger of a potential foreclosure, there are certain things you can do to manage the situation.

Smartline Personal Mortgage Advisers’ executive director Joe Sirianni suggests that, clearly, the first thing to bear in mind is how to reduce the possibility of ending up experiencing mortgage stress in the first place.

Anecdotal experience leads Sirianni to believe that those in financial stress have held onto their asset for too long as the stress starts to build.

“Eventually their debt repayments put them in a position where they go very close to bankruptcy and, in hindsight, will express their wish that they’d sold their home sooner in order to get rid of their debt earlier and give themselves time to get back on track,” he said.

“That’s not to say that making the decision to sell your home in order to clear debt isn’t a stressful and deeply emotional choice to make. Rather, leaving the decision-making process for too long can make an already stressful situation even more difficult – it’s best to talk about the situation and discuss options right from the beginning.”

So, firstly, if you think mortgage stress is going to become a possibility or you’re starting to feel the pinch then consider to yourself whether selling early is the best option for you.

Similarly, if you can predict what the worst case scenarios may be then you are often better placed to handle them should they arise.

Redundancy, illness or injury can be possible outcomes for every individual and it is worth putting in place insurances ahead of time to mitigate these risks.

Personal insurance products, such as income protection insurance, trauma insurance and possibly life insurance can be worthwhile considerations.

If this is something you haven’t managed to do – be upfront with your lender and tell them quickly what the problem is.

“It’s always best to be upfront with your lending institution to let them know about your situation – particularly if you predict that you’ll experience financial difficulties in the near future if you don’t secure another income,” Sirianni advises.

For lenders, it’s in their interest to assist you during these times. You may find that a lender can assist by helping you change your loan to interest only for a period until you find another job, or give you a “repayment holiday” until you’re on your feet.

While you do have an obligation to repay your loan, lenders are not out to work against you and there’s often a solution you can work with them towards.

“Not only are many people surprised by how readily lenders will work with them, they find that any misconceptions around how they might manage the debt on their own are incorrect,” he suggests. This may include borrowers who believe they can use the equity in their home to assist during tough times – without realising that they need an income to have lending approved to pull out these funds.

Other situations that are seen by Sirianni as causing mortgage stress can include credit card and personal loan debt.

Now is the time to stop accruing more debt. Cut up your cards, speak to your lender and look to put yourself on a repayment plan, he suggests.

“If you find yourself in a distressing financial position as a result of an unforeseeable event that, in turn, sees you falling behind on your mortgage repayments and incurring significant credit card debt as a result, there are options available – highlighting the need to get on top of out-of-control debt from the very beginning,” he said.

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