Mortgage stress creeps on you when you spend more than the recommended proportion of your income on your instalments. It’s often an early sign of a homeowner who may end up in a mortgagee sale. Mortgage stress is often triggered by factors beyond our control like rising interest rates or economic depression. However, the real reasons why you may be experiencing mortgage stress are often hidden. You must be willing to search within yourself to find out.

Here are some of these reasons and what you can do.

You Bit More Than You Could Chew

One of the most common reasons why many Kiwis experience mortgage stress is taking unaffordable home loans. The average home loan for a first time home buyer in New Zealand has been rising. At the same time, low-deposit home loans have also been on an upward trend.

Expensive homes seem to be affordable due to ordinary kiwi. However, homeowners don’t envisage an economic downturn and how it could hurt their mortgage payments.

Could it be that you bought an expensive home?

One of the best ways to avoid making this error is by working with an experienced mortgage broker. They will help you to work out a comfortable budget and create a buffer which you can use as savings for a rainy day. Alternatively, you could sell the house and use the proceeds to downscale to a more affordable home.

Loan structure just wasn’t right for you – refinance and get the right structure

The most common mortgage structure in New Zealand is the table loan. In this model, lenders even out payments throughout the entire loan term. Changes only happen when interest rates shift or the lender chooses to adjust the rates.

Unfortunately, table loans are designed such that a bulk of the initial payments are allocated the interest, not principal. The proportion evens out much when the loan is more than seven years.

The challenge with this structure is more psychological. Despite making several payments worth thousands of dollars, the principal amount you owe moves by just a couple of hundreds of dollars. Worse still, if the interest rates rise while you are in the early stages of the mortgage, the monthly bill rises significantly and it could push you to mortgage stress.

You can avoid such a scenario by changing to a revolving credit mortgage or an offset mortgage.

Too Much revolving credit – refinance and consolidate

With the unprecedented rise in revolving credit among Kiwis, mortgage payments are feeling the heat.

Homeowners are spending more on credit cards, payday loans and other revolving loans.

When the debt burden exceeds 30 per cent of your pre-tax income, you are likely to experience mortgage stress. If that’s your situation, reach out to a mortgage broker or a qualified financial advisor for assistance on consolidating your debts.

Consolidation of your loans may take you slightly aback on the mortgage bill. But the relief of removing the pressure of high-interest loans is worth the move.

These hidden triggers of mortgage stress can affect anyone. Use the information above to prepare for your counterplan.