Buying a home isn’t all about sailing off into the sunset after you’ve been handed the keys – it comes with a 25 year catch: a mortgage.

Even from the comfortable confines of a dream home, keeping up with your repayments can be tough and it wouldn’t be uncommon to feel as though you’ve bitten off more than you can chew.

Usually, when entering into a financial obligation of this magnitude, you’d have gone through the paperwork in advance, understood the repayment schedule and have been assessed by a lender as financially able to make the repayments based on your current income.

After the initial assessment and approval, however, things can change and you may find yourself stuck with a mortgage that seems unmanageable.

The first step to managing an overwhelming mortgage is to work out where things went wrong.

This is usually one or a combination of three things, according to Propertybuyer buyer’s agent Rich Harvey.

1. Change in income
A different job, a decrease in earnings or other change can quickly alter your ability to repay your mortgage.

2. Increase in costs
If your costs suddenly increase the pool of funds you have to make repayments with dwindles. This could be out of your control, including higher interest rate repayments that suddenly blow out your usual budget.

3.Poor money management
Buying luxuries and not having a clear understanding of your cash inflow and outflow can quickly get you in hot water.

If you have got yourself into mortgage stress, then there are things you can do. Budget

‘Look at your spending and get your budget under control,’ Mr Harvey recommended as a first step for anyone concerned about their mortgage.

Even those who aren’t facing stress yet could do with having a one- to two-year budget plan in mind.

Selling up and downsizing or moving back into renting is an option, but for most it is a ‘worst case scenario,’ Mr Harvey said.

Mortgage Choice chief executive John Flavell said the biggest reason for existing mortgage holders to find themselves in financial stress is taking on additional finance, including credit cards, personal loans, car loans and ‘interest free’ credit products.

‘In other words, mortgage holders financially over-extend themselves once they have their mortgage,’ Mr Flavell said.

Obviously, prevention is better than a cure in these situations. Carefully considering what you can realistically afford above and beyond your mortgage repayments is critical. Speak to your lender

If your repayments are becoming a strain, speak to your lender sooner rather than later.

‘In the first instance, if mortgage holders find themselves experiencing financial strain, they should let their bank or broker know,’ Mr Flavell said.

A broker could help you switch into a cheaper home loan product, such as with a lower interest rate, or could help consolidate additional credit debt onto a mortgage so you aren’t facing multiple debt repayments at high interest rates.

Mortgage holders should then look to being disciplined with luxuries, including vehicles, furniture and treats that weren’t included in the ‘pre-mortgage budget’.

‘Planning ahead with finances for a full year can be daunting, and ultimately, ineffective. Instead, budget monthly or in accordance with the length of a pay period,’ Mr Flavell said.

‘This will allow mortgage holders to amend their budget fairly quickly if they overestimate or underestimate certain expenses,’ he said. Five ways to get back on track

  1. Borrow from relatives
  2. Work out a payment plan with the bank
  3. Use your equity to build a granny flat to rent out or rent out a room
  4. Have a garage sale to get some upfront cash and give yourself some breathing space
  5. Reduce your expenses and get your spending under control

Source: Rich Harvey, Propertybuyer

Posted by Jennifer Duke – Domain (Fairfax) on 7th December, 2015