Managing your mortgage stress

Mortgage stress is the point where a person breaches his or her level of home loan affordability.

This is usually calculated as people paying more than 30% of their pre-tax income on home loan repayments.

For example, a couple earning $100,000 a year would be in mortgage stress if their loan repayments exceeded $30,000 per annum. However, whether this is true or not is debatable because I believe the 30% benchmark is a flawed measure.

The issues with calculating mortgage stress

Applying an across the board measure implies a “one size fits all” approach, and fails to recognise that not all borrowers are the same.

People have different spending patterns, financial commitments and income levels, and personal circumstances significantly affect what is and isn’t affordable.

For example, it is possible for a person paying 20% of their income towards their mortgage to be struggling to meet their repayments due to non-mortgage related expenses, while another person can live comfortably paying 40% of their income off their mortgage because their income, lifestyle and spending patterns support this level of

Another issue I have with this calculation is the use of pre-tax income. We don’t pay our bills or spend our money before the tax office has taken its share of our income, so it’s our after-tax disposable income that is important. Further to this is the make-up of a household’s income.

A single income family earning $100,000 is most likely paying more tax than a double income family earning the same amount. This would suggest that the family with two incomes has more money left over after tax to meet their mortgage repayments.

The other interesting aspect to this measure is the inclusion of those who pay more through choice and as part of a debt reduction strategy.

While their payments may be above the limit, they are doing so because they can afford to and it doesn’t indicate they are facing financial difficulties.

Calculate your mortgage stress and prepare a budget

Only you can determine what you can and can’t afford when it comes to paying off a mortgage. Considering the methodologies applied by the government, academics and lenders are good starting points, but you need to apply your own circumstances to calculate your individual mortgage stress point.

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A good way to determine what you can and can’t afford is by preparing a detailed budget. By preparing and monitoring your own personal budget, you can determine the mortgage stress point that is unique to you.

Adding in all of your after-tax income and expenditure will show you how much you can afford to set aside for mortgage repayments, and highlight where you can save more and/or generate more income if there are any gaps.

You can also alter your budget to take into account future interest rate changes, changes in personal circumstances, or to see what would happen to your finances if something unexpected happened like unemployment or an unexpected bill.

Calculating mortgage stress also applies to investors. While investors have the added benefit of tenants paying rent and contributing towards the cost of mortgage payments, most investments are negatively geared, so the same principles apply


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Peter Boehm


Peter Boehm was the Finance Editor for & has more than 30 years' experience in banking and financial services - Visit

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