Managing Mortgages and the Cost of Living in Challenging Times

As Aussies continue to front a cost-of-living crisis, homeowners are still facing financial hardship and high mortgage repayments.

Skyrocketing house prices nationwide, combined with a cash rate that has remained at a decade-long high since November, have contributed to widespread penny-pinching among mortgage-burdened Aussies. Currently in Victoria, 505,000 mortgage holders are spending more than what they are making.

If you’re a homeowner, you may feel like you’ve been left in the lurch – but you’re not alone! Many mortgage holders are struggling to meet mortgage repayments without having to sacrifice their financial health and basic needs. Balancing everyday expenses with a hefty mortgage is a real challenge for many Aussies.

So, what can you do?

Refinance your home loan to a competitive rate

The first step for anyone struggling with their mortgage repayments is to ensure you’re on a competitive rate. With the new financial year underway, it’s a smart move to meet with a mortgage broker and explore whether a more competitive deal is available from your lender. Putting this into practice each year could help you save money on your mortgage repayments. If your current lender can’t provide you with a more competitive deal, there may be another lender who can. Refinancing can be crucial to maintaining a healthy, adaptive mortgage. While interest rates have remained high for an extended period, meaning most rates will likely be high, you may still be able to free up some of your funds and avoid the mortgage cliff.

Save on utilities and essential services

Just like you can switch over to a more competitive rate for your home loan, you can do the same for your utilities. Talk with your existing electricity and gas provider to see if there are cheaper options available. They’ll likely be eager to help you save money and retain you as a customer. If they can’t move you to a more competitive rate, shop around with other providers.

Should I switch to interest-only mortgage repayments?

If you’re unable to make your regular repayments on your home loan, it may be worth exploring the option of switching to interest-only repayment, like 6% of mortgage holders in Australia. Interest-only payments are charged monthly by your lender, but they’re smaller than regular mortgage repayments since you are only paying the interest. They can be beneficial for owner-occupiers in the early stages of their home loan. Your loan amount will remain the same and you’ll still keep the property, but eventually you’ll need to pay off the original loan amount, often through higher repayments later on. This could end up hurting you more than helping you, so it’s always important to discuss this in-depth with your finance professionals before making any rash decisions.

Finder’s Money Editor, Richard Whitten says, ‘If you switch to interest-only repayments temporarily, but your financial situation doesn’t improve, you might find that when you revert to principal and interest repayments, they could be higher than before’.

The option of interest-only repayments depends on your individual circumstances and may not be available to owner-occupied loans. It’s essential to consult with a mortgage broker to determine if this is an option suitable for you.

Bill smoothing

If large bills such as gas, water and electricity coincide with your mortgage repayments, you could face a substantial hit to your savings for that quarter all at once. To help manage this, some utility providers may offer bill smoothing, which divides your utility payments into smaller, more manageable amounts on a monthly or fortnightly basis, instead of having to fork out a large lump sum.

Spreading out the cost of your bills into smaller, regular payments may result in paying more over time, but it can make your monthly budget more manageable. Contact your utility provider to see if this option could benefit you.

Extend the term of your home loan

If you’ve had your loan for several years, the remaining term left on your loan may be shorter than the maximum term of 30 years, offered by most lenders. If you’re struggling to pay your home loan, refinancing to extend your home loan back to 30 years can reduce your monthly repayments and help manage your household budget. While this will increase the total interest paid over the life of the loan, unlike interest-only repayments, the principal balance will still decrease. Essentially, a longer repayment term means more interest over time; the longer it takes you to pay off your loan, the more interest you’ll accrue.

Shop elsewhere

Groceries are a massive cost we’re all having to eat, and the big two supermarkets have had a lot of heat on them recently for high pricing. It’s no wonder Aussies are getting their groceries from alternate suppliers. Local food markets, farmer markets, and produce suppliers such as fruit stores, bakers, and butchers have seen relatively stable pricing while supermarket costs have skyrocketed. Instead of going straight to your local supermarket, it may be worth going down to your community’s Sunday market.

Other options

If you find yourself in the difficult situation of not meeting mortgage repayments, it’s key to know the process of what happens next. It’s important to let your lender know ASAP if you are experiencing any financial hardship or struggle; brokers and lenders can help you navigate this stressful time, so don’t delay and reach out as quickly as you can – after all, we’re here to help!

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