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30% fear home loan default: How to avoid mortgage stress

Home loans: An open home sign on a footpath and Australian currency.
Aussies are more worried than ever about defaulting on their home loans. (Source: Getty)

Australian mortgage holders are feeling anxious about their mortgage repayments, with 30 per cent admitting defaulting on their home loan is a major concern, according to new research.

The research, conducted by Aussie, revealed three in four Australian mortgage holders were unsure how the RBA cash rate increases would impact their household budget, leaving them searching for clarity.

Worryingly, almost three in 10 Australian mortgage holders (28 per cent) did not consider that the cash rate would increase at all when budgeting for a home loan, despite having to account for it in their home loan assessments.

A further four in 10 (38 per cent) only budgeted for the impact of a cash rate of 3 per cent or less.

“With increased cost-of-living pressures, there’s no doubt this is a stressful time for many Australians, particularly mortgage holders,” Aussie state broking manager Karen Sorrenti said.

“Our latest research shows almost one in five Australians (18 per cent) with mortgages are dealing with ‘significant mortgage stress’.

“A further four in five (81 per cent) confirmed the rising cash rate and upward cost of living is a growing reality, placing unwanted tension on their household.”

Sorrenti said a staggering number of mortgage holders had not taken action or investigated alternative options, like refinancing.

7 ways to avoid mortgage stress

  1. Stop, look and ask - always know what your current rate is and, if it’s fixed, ensure you know when it ends

  2. If you’ve avoided financial literacy, now is the time - it’s the gateway to managing, or avoiding altogether, financial distress

  3. Do some calculations - be one step ahead on what you can afford for repayments and what amount would put you on the path to financial strain

  4. Practice a mindful money approach, paying attention to your full financial position

  5. Refinance to a home loan with low or zero fees

  6. Take advantage of refinance cashback offers

  7. Consider an offset account to reduce the amount you pay in home loan interest

Property downturn may not be as dire as we think

While the stress of higher interest rates has played on homeowners’ minds, so has concern about the property downturn.

With property prices going down, many who purchased at the height of the recent boom are concerned about the value of their property falling and ending up in negative equity.

Negative equity occurs when someone has paid more for a property than what it is worth.

For example, if someone purchased a home for $1 million with only a 10 per cent deposit and the value of the property then falls 20 per cent, they then owe more on the property than what they could sell it for.

However, according to a new report from Domain, the correction in the property market may not be as bad as some might imagine.

Based on analysis of four property cycles since the early 1990s, Domain research and economics head Nicola Powell said a return to pre-pandemic prices was unlikely.

A chart showing the total value of Australia's property market since 2011.
The total value of Australia's property market since 2011. (Source: Yahoo)

"When property prices fall, it can understandably make many Australians feel uncertain about their property journey," Powell said.

"However, it is important to remember that property has historically moved through upswings and downturns, and there are lessons that can be learnt from previous price cycles."

The Domain report challenges the view the housing market goes through dramatic boom and bust cycles.

Home prices tend to surge and then decline slightly, flatline or go through a period of subdued growth before trending upwards again.

During the average upswing, house prices rose 32.7 per cent from trough to peak.

By contrast, the average downturn was a 3 per cent decline in house prices from peak to trough.

  • With AAP

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