This article contains general information only and does not constitute personal financial advice. Please consider your own circumstances or speak with a qualified mortgage broker before making any decisions.
After three cash rate increases earlier this year, mortgage stress is back in the headlines. The Reserve Bank of Australia raised the cash rate in February, March and May, taking it to 4.35%. According to the RBA’s cash rate history, it has remained at that level since May.
For many households, those increases are now being felt through higher home loan repayments and tighter monthly budgets. If your repayments feel harder to manage than they once did, you are far from alone. It does not necessarily mean you are about to lose your home, but it is a sign that your loan and household cash flow deserve a closer look.
This article explains what mortgage stress means, the warning signs to watch for and the options available before financial pressure becomes more serious.
What is mortgage stress?
There is no single universal definition of mortgage stress.
A commonly used rule of thumb is that a household may be under mortgage stress when more than 30% of its gross income goes towards home loan repayments. However, this measure can be too simplistic. A higher income household may be able to spend more than 30% of its income on housing without struggling to meet other expenses, while a lower income household may feel pressure below that level.
The more formal “30:40” housing stress measure generally focuses on households in the lowest 40% of the income distribution that spend more than 30% of their gross income on housing costs. These costs can include more than the mortgage alone.
It is also useful to separate three situations that are often grouped together:
- Financial pressure: Your budget feels tighter and you are cutting back in other areas.
- Mortgage stress: Your home loan repayments are taking up a substantial share of your available income.
- Financial hardship or arrears: You cannot meet your agreed repayments and need help from your lender.
Many borrowers experiencing pressure are still in the first two categories. At that stage, there may be several options available before missed repayments become a risk.
Why has mortgage stress increased in 2026?
Many borrowers had adjusted to the higher rate environment that followed the post-COVID hiking cycle. The RBA then increased the cash rate by 0.25 percentage points in February, March and May 2026, taking it from 3.60% to 4.35%.
According to Roy Morgan’s latest research, 32.5% of mortgage holders were considered “At Risk” of mortgage stress in July 2026. That equates to approximately 1.786 million Australians and is the highest proportion recorded by Roy Morgan in 18 years.
This was up from 23.9%, or approximately 1.18 million people, in January 2026. It is important to understand that Roy Morgan’s result is a research classification based on its own income, spending and repayment thresholds. It is not a measure of mortgage arrears or a legal finding that a borrower is in hardship.
The RBA uses a different measure. In its March 2026 Financial Stability Review, it estimated that a little over 1% of variable rate owner-occupier borrowers were experiencing a cash flow shortfall at the end of 2025. Housing loan arrears also remained low.
That estimate predates the full effect of the 2026 rate increases, but it shows why mortgage stress survey results should not be treated as equivalent to actual arrears.
“Most people have adjusted to rates of around 5.5% to 6%, and very few borrowers are still on the extremely low fixed rates we saw several years ago. After another three rate increases this year, more households are starting to feel the pressure.” – Kane Ladhams, Senior Mortgage Broker
What are borrowers doing after the 2026 rate increases?
Two responses have become increasingly common.
Some borrowers are considering a fixed rate because they value certainty and want to know exactly what their repayments will be for the next year or two. Others are comparing their current lender’s offer with the rates and loan structures available elsewhere.
Some lenders have also reintroduced cashback incentives for eligible refinancers. These offers can be useful, but they should not be considered in isolation. A cashback may be outweighed by a higher rate, ongoing fees or switching costs, so the overall cost of the new loan still needs to be compared carefully.
Fixed rate pricing also requires context. A lender offering a lower rate for a longer fixed term does not necessarily mean that term is the better option. Fixed rates reflect wholesale funding costs, market expectations and the lender’s pricing strategy.
Before fixing, check the available offset or redraw features, extra repayment limits, break costs and the rate the loan will revert to when the fixed period ends.
A simple mortgage health check
Mortgage stress often appears in everyday financial behaviour before it results in a missed repayment. Ask yourself:
- Are you regularly using a credit card or buy now, pay later service to cover normal living costs?
- Have direct debits started dishonouring because there is not enough money in the account?
- Are you moving bills between pay cycles or delaying essential expenses?
- Are you drawing down savings or your offset balance without being able to rebuild it?
- Have you cut back on essentials, rather than discretionary spending alone?
- Do you feel uncertain about whether the next mortgage repayment will clear?
One or two warning signs do not automatically mean you are in crisis. They do mean it is worth reviewing the situation early.
“The pressure often appears in day-to-day spending first. People go out less, delay purchases and become much more cautious about taking on any new financial commitment. Those changes can be an early sign that the mortgage is placing too much pressure on the household budget.” – Kane Ladhams, Senior Mortgage Broker
What should you do first if you are struggling with repayments?
A dishonoured direct debit is often an early warning sign, but it does not automatically create a missed-payment entry on your credit report.
Under Australia’s credit reporting rules, a repayment can generally be recorded as missed when it is made more than 14 days after the due date.
Repayment history information can remain on a credit report for two years. A default is more serious and has additional requirements, including the payment being at least $150 and overdue for at least 60 days.
“A dishonoured repayment should be treated as an early warning. It may not immediately appear as a missed payment on your credit report, but if the payment remains overdue for more than 14 days, it can be recorded in your repayment history. The earlier you act, the more options you are likely to have.” – Kane Ladhams, Senior Mortgage Broker
Start by confirming your current rate, minimum repayment, available cash buffer and other debts.
If you think you may not be able to make the next repayment, contact your lender’s hardship team promptly. You can also speak with a mortgage broker about whether the loan can be repriced, restructured or refinanced, but urgent hardship support needs to be discussed directly with the lender.
When should you speak to your lender about hardship support?
A financial hardship arrangement is an agreement with your lender to temporarily reduce, pause or otherwise change your repayments because you cannot meet the normal terms of your loan.
The earlier you contact your lender, the more options you are likely to have. Depending on your circumstances, a lender may agree to reduced repayments, a temporary payment pause or another change to the loan. You should agree only to an amount you can realistically afford.
A few points are worth understanding:
- Interest will usually continue to accrue, even if repayments are reduced or paused. This may increase the loan balance or the repayments required later.
- Financial hardship information can appear alongside your repayment history information on your credit report for 24 months.
- A hardship indicator does not automatically prevent you from obtaining credit in the future. However, another lender may consider your broader credit report, repayment history and current circumstances when assessing a new application.
- If you meet the revised repayments agreed under the hardship arrangement, your repayment history will show that you met those adjusted obligations.
If you cannot afford the next repayment, hardship support should not be treated as something to avoid until every other option has failed. Contacting the lender before you fall behind is generally better than waiting for arrears to build.
The Australian Government’s Moneysmart guidance on mortgage hardship explains the process in more detail.
When can restructuring your existing loan help?
Restructuring means changing your current loan, usually without moving to another lender.
Depending on your circumstances, this may include:
- Extending the loan term: Moving from a remaining term of 27 or 28 years back to 30 years may reduce the required monthly repayment. However, a longer term can increase the total interest paid over the life of the loan.
- Consolidating other debts: Credit cards, personal loans or car loans may sometimes be consolidated into the home loan to reduce monthly commitments. This can turn short-term unsecured debt into debt secured against your home and may increase the total interest paid if it is stretched over a much longer period.
- Splitting the loan: A borrower with savings in an offset account may keep part of the loan variable to preserve the offset benefit while fixing another portion for repayment certainty.
“Some clients have money in an offset account but are unsure whether to fix it because they do not want to lose the offset benefit. One option may be to keep enough of the loan variable to make effective use of the offset and fix another portion for greater repayment certainty.” – Kane Ladhams, Senior Mortgage Broker
Any restructure should address the cause of the pressure, not simply reduce the repayment today while creating a larger problem later.
When does refinancing make sense?
Refinancing involves replacing your existing loan with a new one, usually with another lender. It may be worth exploring when:
- A meaningfully lower rate is available elsewhere.
- A different loan structure would improve cash flow or flexibility.
- Consolidating other debts would reduce immediate financial pressure and there is a clear repayment plan.
- Your current lender is no longer competitive on price, features or service.
- A temporary interest-only period may be appropriate and affordable over the longer term.
Refinancing is not automatically worthwhile just because another lender advertises a lower rate. Application, discharge, valuation and package fees may apply.
Borrowers with less than 20% equity may also face lenders mortgage insurance, which can outweigh the benefit of switching.
The right comparison should include the new repayment, fees, loan term, features and total interest cost. Extending the term can reduce the monthly repayment while increasing the amount paid over time.
Interest-only repayments also need to be considered carefully. They can reduce repayments temporarily, but the principal does not reduce during the interest-only period.
Repayments normally rise when the loan returns to principal and interest, and the interest rate may also be higher. It works best when there is a clear reason for the change and a realistic exit plan.
“There can still be a strong sense of loyalty towards a bank, but new customers are sometimes offered sharper pricing than existing borrowers. It is worth reviewing your loan regularly and switching only when the overall numbers, costs and structure genuinely stack up.” – Kane Ladhams, Senior Mortgage Broker
In one recent case, FABE worked with clients who had credit card debt, a car loan and unfinished renovations. Their existing home loan rate was competitive, but their broader debt commitments were placing pressure on monthly cash flow and one applicant’s credit profile limited the available lenders.
The clients moved to a specialist lender at a higher interest rate. By consolidating the other debts and extending the loan term, their required repayments fell by approximately $1,500 per month.
The strategy also included a planned property sale within two years as an exit from the longer loan term.
This type of strategy will not suit everyone. The higher rate and longer term can increase the total cost if the exit plan does not occur.
The example shows why the interest rate, monthly repayment, total cost and long-term plan all need to be assessed together.
Does the new DTI limit make refinancing harder?
From 1 February 2026, the Australian Prudential Regulation Authority began limiting the proportion of high debt-to-income lending that banks can write.
Authorised deposit-taking institutions can fund up to 20% of new owner-occupier lending and 20% of new investor lending at a DTI ratio of six times income or more. The two categories are measured separately.
This is not a hard borrowing cap for every applicant. Banks retain discretion to approve creditworthy borrowers above six times DTI, provided their overall lending remains within the limit and the application meets their normal policy and serviceability requirements.
The limit may make lender selection more important for some high DTI applications, particularly for investors with substantial existing debt.
However, APRA said high DTI lending was below the limit across the banking system when the measure was introduced, with only a small number of banks approaching it.
Owner-occupier bridging loans and loans used to purchase or construct a new dwelling are exempt. Non-bank lenders are not currently subject to the active limit, although APRA has the power to extend macroprudential measures to them if required.
A common mistake worth avoiding
The most damaging response is to ignore the problem and allow repayments to remain overdue without contacting the lender.
“Simply stopping the mortgage repayments without speaking to the lender can make the situation much harder. Missed repayments may affect your credit report and can reduce your refinancing options. If there is a problem, address it early and keep the lender informed.” – Kane Ladhams, Senior Mortgage Broker
Falling behind can lead to fees, affect your repayment history and make it harder to qualify for the refinance that might otherwise have improved your position.
A practical action plan
- Check your current interest rate, repayment, remaining loan term and available buffer.
- Review your household budget and identify whether the pressure is coming from the mortgage, other debts or a change in income or expenses.
- If a repayment may be missed, contact your lender’s hardship team immediately.
- Compare repricing, restructuring and refinancing options using the full cost, not the advertised rate alone.
- Treat a longer term, debt consolidation or interest-only period as part of a clear strategy, not a permanent substitute for affordability.
- If the situation extends beyond the mortgage, consider speaking with a free financial counsellor through the National Debt Helpline on 1800 007 007.
What should you take away from this?
Mortgage stress does not automatically mean your situation is unmanageable. It is a signal to review your loan and household cash flow before the pressure becomes more serious.
There are often more options available at the “starting to feel it” stage than borrowers realise. These may include negotiating a better rate, restructuring the loan, seeking hardship support or refinancing to a more suitable lender.
Not sure whether your current loan is still working for you? We can review your rate, repayments and loan structure, then explain the options that are genuinely available in your circumstances.