Should I sell my house to get out of debt? McGrath tips on finding the balance
By Amanda Scali

22/12/2016 12:00am

Should I sell my house to get out of debt? McGrath tips on finding the balance

With Christmas upon us and the season of holiday spending ahead, it is possible some home owners will ponder whether they should "sell my house to get out of debt," when the credit card bills start arriving.

For all of us but the tycoon types, our house is likely to be the most valuable asset we ever own and the mortgage on it will—we hope—be the biggest debt we’ll ever have to service. Which is why we sometimes look to its credit facility for extra "help".

Be that as it may, the rate of home ownership in Australia has remained stable at around 70 percent for the past half century.

However, for some, paying for the great Australian dream brings stress and heartache, whether or not situations are made worse by excessive festive spending.

When it’s a heartache

It is in the nature of many people to want something more expensive than they can comfortably afford—the proverbial champagne tastes on a beer budget.

Whether it’s ‘keeping up with the Joneses’, wanting to emulate the appearance of success of your parents or siblings, or having friends with more money than you do, it’s easy to be lured into overcommitting when you purchase your home.

There are even more sobering reasons your home may have become a financial burden—the death of a partner, serious ill health, marriage breakdown, redundancy, failure of a business venture, or the accrual of gambling debts, for example.

Cut and run or consolidate and stay?

Fortunately, you do have options if your financial status can no longer bear the cost of servicing your mortgage.

As always with major financial decisions, you should seek advice from a qualified financial advisor, who can run the numbers for you for on a variety of scenarios to help you choose the wisest course of action.

One thing to explore is to see if it is possible to restructure your existing mortgage (and other commitments such as personal loans, hire-purchase agreements and credit card debts) into a different type of loan to keep your home while reducing your outgoings.

Whether or not you have the option to restructure your borrowings will depend on:

  • the size of your debt
  • the interest rate on your mortgage
  • the value of your property
  • the amount of equity you have in it
  • your capacity to repay
  • your credit history.

Another option is to sell your home and buy a smaller or more modest home or one in a cheaper area, which will reduce your mortgage and possibly cut your running costs (lower heating/cooling bills and a smaller yard to maintain, for example).

If the numbers tell you that you can’t afford to own your own home now, then selling it and renting one can be a way out of your current financial bind.

This can also be a way of saving money to consolidate your financial position for a time in the future when your life may have changed so you that you are able to buy your own home again.

In all these considerations your health must be paramount

If owning your own home causes you intolerable stress that has a negative impact on your health and none of the alternative strategies will reduce that level of stress, you should seriously consider selling up.

Please act before your situation gets intolerable and you have to hold a ‘fire sale’; selling your house quickly and cheaply will only make a bad situation worse.

You always need somewhere to live

Whether you own, rent or are sofa surfing (and I hope it never comes to that), having a good relationship with an experienced local real estate agent gives you the greatest number of options on where to live within your means.

If you’re experiencing pressure as a result of home ownership, let the Adelaide coastal and western suburbs experts at McGrath Real Estate work with you and your financial adviser to provide the optimum solution to reduce your stress levels and get your finances on an even keel.

And despite today's important but sobering message, all of us at McGrath Real Estate wish you a very merry Christmas and a bright, prosperous New Year.