Mortgage is the biggest financial commitment for most people around the world. Unless you are an investor or run a midsize to large business, you are unlikely to make any investment that is dearer than your mortgage.

While it is not considered to be a risky investment, there are risks associated with it. You would be making a down payment, which could be all your savings or a major chunk of it. You would be committing to repaying the mortgage, every month for fifteen, twenty, twenty-five or perhaps thirty years. That could be seen as a lifelong commitment. You can always walk out of the mortgage and that would mean you would be moving out of your home. That is why you should try to mitigate mortgage risk as much as you can.

• Never buy a property that is too costly for you. Many homebuyers think that they can manage to pay a mortgage that is 30% or more of their income, they think that they can cut corners and in any case their incomes would rise in the near or foreseeable future and that the amount paid as instalments wouldn’t pinch as much. Such approaches are unwise. Purchase a home that you can afford comfortably. If you do very well in the future and amass substantial wealth, you can always buy a much better or costlier home.
• Do not consider the exact mortgage payments as what you owe to the lender. While that would be the amount you pay for now, it may increase or decrease. Should the repayments reduce due to a cut in rates of interest, then you don’t need to worry. But what if the rates go up and you have to pay 5% or perhaps as much as 10% higher than what you pay right now? You must factor this in and see to it that your incomes conveniently allow for such a surge in financial liabilities.
• Repaying mortgage can become a daunting challenge and almost impossible if you lose your job, if you have a serious medical emergency in the family or if you are unable to work and earn a living. You can consider payment protection insurance; you can consider tenants in your home or you can have some other plan that would keep repaying your mortgage or settle it at once.

 

Speak to your YFG lending specialist to guide you along in calculating the best mortgage repayment amount for you based on your specific income and expenses.

 

 

Stress is defined as a state of mental or emotional strain or tension resulting from adverse or demanding circumstances.

Mortgage stress is defined as a state of mental or emotional strain or tension resulting from the onus of paying a mortgage, or instalments, that are higher than 30% of the total family income.

You can do the math and see if your mortgage consumes more than or let’s say one-third of your total family income. However, there are exemptions. High net worth individuals who aren’t really under any financial stress and whose two-third incomes would be a fortune don’t really fall into this classification. For others, the average families with ordinary homes, mortgage stress is a reality.

How do you know that you are experiencing mortgage stress?

The math alone would not be sufficient. It is very possible that despite paying more than 30% of your income towards your mortgage, you would be doing fine. It is also possible that paying 25% of your income towards your mortgage can get you severely stressed. What it boils down to eventually are the symptoms. What stresses you may not stress someone else.

Let us consider some realities.

Are you consistently thinking of the mortgage you pay? Are you perennially under duress that you have to pay the instalment? Are you compromising on a whole lot of things, perhaps including some humble purchases to continue paying your mortgage? If any of these realities are a part of your life, then you are experiencing mortgage stress.

The reason why 20% to 30% of income is considered the threshold while approving mortgages is the belief of experts over the decades that such an amount can be conveniently put aside and paid by an individual or family. What is not accounted for in such calculations are fluctuations, personal obligations or liabilities that emerge after evaluation the mortgage application when there may not be any debts or astounding financial dependence and many such possible circumstances that can squeeze every cent of the remaining income of an individual or family.

From medical problems to a growing family, professional troubles to untoward developments at home, there can be numerous factors contributing to mortgage stress. Homeowners should consider strategizing their finances to avert mortgage stress. Homebuyers should do the math properly before signing up for a mortgage which can lead to unnecessary and undesirable stress.

The mortgage industry is unlikely to work in favour of individual homebuyers or families that own homes. It is eventually upon every individual to make the right choices.

 

As always, we recommend speaking with your YFG lending specialist when determining the right amount for you to be spending on your mortgage – They are the experts after all!