Mortgage stress is when you spend more than 30% of your disposable income servicing a mortgage. This is usually the result of a change in your circumstances since the loan was originally taken out. For example you may have lost your employment, be unable to work due to ill health or have had a relationship breakdown.
When people are experiencing mortgage stress, they often neglect other bills in order to keep making the mortgage payment. Some of the bills that may not be paid include council rates, water rates and home insurance.
Whatever the reason if you are falling behind with bills or feeling overwhelmed this is the time to make an appointment with a financial counsellor.
Financial counsellors can talk through some of your options and advise you of the advantages and disadvantages of those options. Every case is different and there is no one solution that will suit every client.
Margaret came to see a financial counsellor, having been in financial hardship for over 12 months. Margaret had a mortgage, a personal loan and a credit card. She was working full-time however her employer had made cutbacks and her work hours had been reduced. Her son had also moved out and he had been contributing to her budget. These recent changes meant that Margaret was struggling to keep up with her home loan repayments.
We started by preparing a Statement of Financial Position which gave us a good understanding of Margaret’s financial position. As the budget indicated a deficit, we looked at all available options including the sale of her house and applying for hardship assistance. The financial counselling also discussed other practical ways of releasing cash flow. After considering her options Margaret instructed the financial counsellor to negotiate with the bank. The financial counsellor explained the client’s circumstances and made written hardship requests on her outstanding debts. A request to close the account and cease interest was made on the credit card along with an ongoing weekly repayment arrangement. A request to extend the personal loan term from two to four years was put forward, which would reduce the client’s fortnightly commitment.
These changes negotiated on Margaret’s personal loan and credit card contracts meant that the client was able to afford essentials like her home loan repayments, food and utilities. The financial counsellor was able to assist the client take stock of her financial situation and by taking steps to relieve her mortgage stress.
Every client is different therefore getting the right advice early is very important.