April 2021 marks the first month since COVID-19 where JobKeeper payments are no longer available, even for those who still don’t have the income they had prior to COVID. If you have just received your last JobKeeper payment and you still have a mortgage to pay, you may be concerned about how you’re going to meet your repayments.
The term ‘mortgage stress’ refers to a situation where so much of your income has to go towards your mortgage repayments that you don’t have enough money to meet your other expenses. This often starts to happen once around 30% of your pre-tax income goes towards your mortgage repayments. Mortgage stress can happen to anyone, even to high-income earners if they have a large mortgage and high repayments.
A number of lenders are still offering some support for borrowers whose income continues to be impacted by COVID-19, so make sure you get in touch with your lender if you haven’t already. Eventually, however, banks will have to start the process of forced sales for those property owners who still cannot make repayments, although the timing on this will vary from lender to lender. If you think this is where you are headed, it may be better to sell your property yourself before the bank starts legal proceedings, although you should speak to your financial adviser before making these big decisions.
Regardless of whether you are still receiving support from your bank, there are a number of ways to reduce mortgage stress. Even if your loan is deferred, don’t forget that the interest is still accruing and you will have to pay it back at some point, so you should start making these changes now. Consider the following:
– Cutting your costs. Going through the past 12 months of bank statements often reveals payments you’ve been making that you had forgotten about, such as subscriptions and memberships. It’s time to cut these out for now. If you are paying interest on your credit card, you may be wise to switch to using a debit card, and consolidate your debt onto your mortgage so you pay less in interest. Don’t forget to shop around for a better deal on utilities and services.
– Refinancing. There are some amazing variable and fixed-rate deals available. You won’t be able to refinance if you have lost your job; however, please speak to me about a refinance if you still have a certain amount of income coming in, but just need some more breathing room.
– Extending your loan or switching to interest only. These options can reduce your repayments for now. However, these changes to your loan will increase the interest you pay over the long term. Please call me so I can explain the ramifications of a switch and help you determine if this is the right option for you.
– Renting out your property. If you rent out your property and move to a property where the rent is cheaper than that for your own house, the difference in rental income goes into your pocket, which may help you make your loan repayments until you get back on your feet.
Finally, the National Debt Helpline is a great not-for-profit service offering free financial counselling for those who need it.
Please also feel free to give me a call so I can help guide you towards a workable solution.