Mortgage stress: how much loan is too much?

The textbook definition of mortgage stress is spending more than 30% of gross household income on repayments. Like most textbook definitions, it is a blunt instrument: a household on $250,000 can carry 35% comfortably, while one on $80,000 can struggle at 25%. What matters is your surplus, your buffer and your trajectory.

A better personal test

• Surplus: after the mortgage, bills, food, transport and real life, is money left every month?
• Buffer: could you cover three months of repayments from savings or offset today?
• Shock test: would a 1% rate rise or a drop to one income break the budget, or just bruise it?

Fail one, and you are stretched. Fail two or more, and you are in stress territory even if the 30% ratio says otherwise.

If you are heading toward trouble

Act early, in this order. First, check your rate: drifted pricing is the most fixable cause of stress, and a reprice or refinance can claw back hundreds a month. Second, look at structure: consolidating expensive debts or, temporarily, extending the loan term reduces the monthly load. Third, use your lender’s hardship provisions; every Australian lender must have them, and they exist for job loss, illness and separation. Asking does not mark your credit file; missing payments does.

Preventing it at purchase time

Stress is usually baked in on day one, by borrowing the maximum a lender offers rather than the amount that leaves room to live. Set your ceiling at repayments you could hold if rates rose 2%, and keep a buffer untouched after settlement. See the mistakes first home buyers make.