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Calculator Assumptions and Disclaimers

    Our calculator estimates your risk of mortgage stress by taking the following steps:

  • Breaking down your entered annual income into approximate monthly income by dividing the total by 12.
  • Breaking down your partner’s entered annual income into approximate monthly income by dividing the total by 12.
  • Comparing your entered monthly repayment to your approximate monthly income (yours plus you partner’s).
  • Displaying the result as a percentage on the table – results higher than 30 per cent are assumed to be in mortgage stress.
  • All calculations are estimates – they are not guarantees that you’ll be able to afford a particular home loan repayment and are not pre-qualifications or pre-approvals for borrowing.
  • These calculations are only accurate for the information entered, and do not take into account future changes to you/your partner’s income, your home loan interest rate, or your mortgage repayments.
  • Different lenders may use different serviceability criteria to measure the risk of mortgage stress when you apply for a home loan.
  • Results are calculated based on pre-tax income and do not take any other living expenses into account.
  • Some people on high incomes may be comfortable paying 30% or more on housing or some people may have a solid buffer or back-up plan to make them comfortable taking on a larger debt.
  • The calculator is for information purposes only. Any advice is general and has not taken into account your personal circumstances.Read our full disclaimer.

How does the mortgage stress calculator work?

To calculate your level of potential mortgage stress, simply enter your details into the available fields, including:

  • Your pre-tax income,
  • Your monthly mortgage repayments, and
  • A partner's pre-tax income (optional).

The mortgage stress bar will then show visually how close you may be to experiencing mortgage stress.

  • Stress Free Zone: You are spending less than 20% of your income on home loan repayments. You are not in mortgage stress and are not likely to be in mortgage stress for some time.
  • Stress Danger Zone: You spend between 20-30% of your income on home loan repayments. You are close to the mortgage stress tipping point if interest rates were to rise further, or your financial situation were to change, but you are not yet in mortgage stress.
  • Mortgage Stress Zone: You are spending 30% or more of your income on mortgage repayments. You are already in mortgage stress.

What is mortgage stress?

The Great Australian Dream has always been to buy a property, but no one wants to fall into financial disarray just for trying to repay their mortgage. Mortgage stress is a measurement that can help indicate to borrowers if they are paying too high a portion of their income into their mortgage.

Mortgage stress is commonly defined as paying more than 30% of a household’s pre-tax income towards monthly mortgage repayments.

Some financial experts may view this as a simplification, and instead look to the Australian Bureau of Statistics definition, which applies the 30% rule to low-income households specifically (income in the bottom 40% of Australia’s income distribution). This is understandable when you consider that a high-income household earning $350,000 annually versus a household with an income of $70,000 annually would view that 30% figure significantly differently.

Regardless, aiming to keep your mortgage repayments at or below 30% of your pre-tax income is still a worthwhile measurement to keep in mind for any homeowner (and for renters as well). Mortgage stress can leave you in a vulnerable position if your financial situation changes, such as if your mortgage repayments increase, your household expenses increase, or your household income decreases.

Why are some Australians experiencing mortgage stress?

With rising inflation levels putting pressure on the Reserve Bank of Australia (RBA) to hike the cash rate, many Australian homeowners will be feeling hte punch, and may be at risk of falling victim to mortgage stress. Higher interest rates as a result of these cash rate hikes mean homeowners are paying more of their income towards their mortgage repayments. And rising inflation means your household budget has less room to accomotate higher repayments.

Rate hikes are set to continue throughout 2022, thanks to issues like the ongoing global supply chain delays, causing inflation to peak at a 21-year high. As inflation is a major factor that influences the RBA's decision to change the cash rate, it's likely that more and more Australian households could fall into mortgage stress in the next few years. 

By using the mortgage stress calculator, you can assess your current financial situation, and set a plan to ensure you're in a healthy financial position. 

What happens when you can't pay your mortgage?

If you find yourself unable to repay your mortgage, there may be serious financial repercussions.

  1. Firstly, contact your lender to advise them that you’re in financial hardship and request hardship assistance. You may need to provide evidence of this through proof of a loss of income, for example.
  2. If your hardship assistance ends and you’re still unable to pay your mortgage, your home loan lender may then send you a letter of demand due to late payment. If a late payment exceeds 14 days, the lender may contact a credit agency and your credit score may go down. You may also have to pay a late fee on top of your next mortgage repayment.
  3. If your mortgage payment is 90 days overdue the lender may send a default notice, including legal right to change your loan terms (such as extending your loan term to reduce your repayments). This default notice may offer you a catch-up period, in which you must meet your mortgage repayments - typically within 30 days – or face further actions.
  4. Finally, if you’re still unable to meet your mortgage repayments, the lender may start court action by filing a statement of claim against you, giving you a final number of days to pay back your debt. After this, the lender will typically take possession of your home and sell the property to reclaim the loan debt.

How can I avoid mortgage stress?

If the Mortgage Stress Calculator shows that you’re at risk of financial pressure due to your home loan costs, now is the time to consider what options may best suit your situation and budget to reduce the pressure on your household budget.

Two of the simplest ways to avoid mortgage stress are to either increase your income or lower your home loan repayments.

While getting a pay rise may be a challenge – particularly in a time of low wage growth - you may be able to lower your monthly repayments by:

It is also possible to reduce your interest charges on your mortgage by utilising home loan features, like an offset account. Any funds that you deposit into your offset account work to “offset”, or reduce, the amount you pay in interest.

You may also want to consider making extra repayments into your mortgage if your lender allows this feature, as reducing your loan principal will help to lower your ongoing mortgage repayments.

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Fact Checked

This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.

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