Like most things in life, it’s difficult to make borrowing a stress-free exercise, but there are a few things you might consider that may help to reduce the angst.

• Build up a buffer
  It’s a good idea to hold (or build up) a cash reserve in a mortgage offset account to provide a buffer that can be drawn upon to meet your loan repayments if you become ill or are off work for other reasons.
• Take out personal insurances
  It’s important to ensure your income (which is what services your debts) is not compromised due to certain events beyond your control. One way to do this is to ensure you have adequate personal insurances. Key examples include:
  1. Income Protection Insurance which can replace up to 75% of your income if you are unable to work due to illness or injury. This can ensure you are able to continue meeting the majority of your living expenses, not just your loan repayments.
  2. Critical Illness Insurance which can help you service or pay off your loan and meet a range of expenses in the event you suffer a specified illness, such as cancer or a heart attack.
  3. Total and Permanent Disability Insurance which can help you service or pay off your loan and provide an ongoing income if you become totally and permanently disabled.
  4. Life Insurance which can be used to service or pay off your loan and provide your family with an ongoing income if you pass away.
• Take out mortgage protection insurance
  Many lenders offer insurance when you take out a home loan that covers the mortgage (often up to a specified amount and for a particular period of time) if you die, become disabled or your employment ends involuntarily.
• Fix the interest rate
  Fixing the interest rate on your home loan can provide protection against rising interest rates. The downside is there are often restrictions on making additional payments into a fixed rate loan, which would limit your capacity to build up a buffer. Many people find a combination of fixed and variable rate loans works best, as additional repayments can be made into the variable rate portion of the debt.
• Don’t add fuel to the fire
  Over 40% of the people who completed the RMIT survey responded to the initial difficulty in meeting mortgage repayments by using credit cards more often than they normally would. Using debt to service debt is very likely to compound the problem.
• Review your situation
  At the first sign of a problem, it’s essential to seek advice, as there may be a range of potentially viable options to explore. Better still, you may want to seek advice before you decide how much to borrow.