With home loans hitting record lows since the reduction of the OCR to 1 per cent, the quest for homeownership surged in New Zealand. Of course, this has triggered demand-pull inflation on house prices. However, as the mortgage size gets bigger, more Kiwis are experiencing mortgage stress. But not all are succumbing to the stress. Many have learned how to manage and get rid of stress. Here’s how they did it.

What is mortgage stress

As the average size of home loans in New Zealand gets bigger, Kiwis are digging deeper into their pockets to service the mortgage payments. This not only puts a strain on other expenditure, but it also jeopardizes the mortgage.

More New Zealanders are straining their budgets to make mortgage payments and the bloating consumer debt isn’t helping.

When you strain to make mortgage payments you are likely to experience mortgage stress.

What causes mortgage stress

Many factors can trigger mortgage stress. However, the descent is often gradual and predictable. For starters, when you buy a home that you are struggling to afford, it sets you up for mortgage stress. You can also experience mortgage stress due to overly high repayment amounts. Also, when your home budget is burdened by high expenditure on revolving debt, you are on the brink of mortgage stress.

These factors create pressure on your budget leaving you susceptible to triggers such as”

• A rise in interest rates.
• An economic downturn (such as the looming downturn due to the Covid-19)
• Job loss
• Separation or divorce

How to avoid it

The best way to handle mortgage stress is to avoid it. But we all know that it’s highly unlikely for anyone not to feel stretched by mortgage payments. However, with careful planning you can keep the payments stress at bay by taking these steps:

• Keep yourself to realistic limits when buying a house. As the adage goes, cut your coat to your size.
• Keep revolving debt at a minimum.
• Test as many what-if scenarios concerning your income (prepare for the worst).

Work with an experienced mortgage broker and evaluate different lenders’ products, policies and customer experiences as well as trends in the market interest rates.

If you’re experiencing mortgage stress, here’s how you can manage the stress.

Managing and Getting Rid of Mortgage Stress

How well do you handle your finances? Are you spending too much on stuff you don’t need? Do you have a high debt burden, especially revolving debt? Reach out to a financial advisor to help you get your act together.

If bad budgeting or high revolving debt burden is not the issue, reach out to your lender and seek ways to reduce the regular payments. Check if you can:

• Get a mortgage holiday (Although this is not advisable and only restricted to situations of serious financial hardships). You can consider taking a short break during which you pay interest only.
• Review the payment schedule, say from weekly or fortnightly to monthly.
• Extend the mortgage term.
• Refinance to a lower interest rate option.

The first three options will help you manage mortgage stress. But you’ll be in debt for longer and you’ll pay more interest. On the other hand, refinancing to a lower rate mortgage is your best way out. But it’s hard to do this especially if you got late on some payments and your credit score plummeted. The lender may not understand your situation. Talk to a bad credit mortgage broker and find a way to get rid of the mortgage stress.