When Mortgage Costs Rise: One Owner’s Alternative Approach

This case study is illustrative only and is provided for general information purposes. It does not constitute financial, legal or credit advice. Individual circumstances vary and professional advice should be sought before entering into any co-ownership or rent-to-buy arrangement.

Mortgage Holders are feeling the pinch too

Nathan purchased his Collingwood apartment in 2019, during a period of historically low interest rates. At the time, repayments were manageable and the property aligned with his long-term goals.

By 2025, however, his mortgage repayments had increased by close to 30% compared to two years earlier.

At the same time, Nathan was planning to relocate overseas for work.

He found himself weighing up familiar options:

• Sell the property

• Lease it traditionally

• Or explore alternative ownership structures

When I first bought, the numbers were comfortable. The rate changes over the last couple of years definitely shifted that.

To sell or rent?

The apartment had appreciated since purchase. While selling would have released equity, Nathan preferred maintaining exposure to the Melbourne market.

He viewed the property as a long-term asset and wasn’t keen to exit purely due to short-term cash flow pressure and fear that he wouldn’t be able to re-enter the market.

Nathan considered standard renting, but after factoring in:

• Property management fees
• Ongoing maintenance and compliance costs
• Current rental market conditions

…the projected rental income would not fully offset his increased mortgage repayments.

Even with Melbourne rents rising, once you account for fees and costs, it wasn’t quite covering the new repayments in my situation – so I would need to find cash from somewhere else to cover it

While Melbourne rents had risen, they did not completely match the higher loan costs in his specific circumstances.

I felt like neither of these options [to sell or rent] was suitable but what else could I do?

Exploring Rent-to-Buy

Through Letterbox, Nathan connected with Cadence, a Melbourne renter interested in transitioning toward ownership but facing deposit and borrowing constraints in the traditional market.

They explored a structured co-investment arrangement with legal documentation in place.

The agreed framework included:

• Upfront contribution: $15,000 from Cadence (representing approximately 2.3% beneficial ownership)

• Weekly payment: $804 per week

• A portion of the weekly payment allocated toward increasing Cadence’s equity over time

• An agreed intention for Cadence to purchase Nathan’s remaining interest after five years at market value (subject to formal valuation and finance availability)

How it changed the cash-flow

In this example, the agreed weekly amount exceeded standard market rent for comparable apartments in the area.

For Nathan, this meant:

• Improved monthly cash flow relative to a traditional lease and he now had a rental income
• Greater certainty around occupancy
• A defined five-year timeframe for a potential exit

It meant I wasn’t as exposed month to month. There was more predictability, which was important while relocating.

It also aligned incentives: Cadence had a structured pathway toward ownership, that was realistic and achievable for her.

Why Rent-to-Buy was Appealing in this Scenario

In Nathan’s case, the arrangement provided:

• Higher Agreed Weekly Payments – compared to a standard lease, the structured payment was higher, improving his ability to manage loan repayments.
• Defined Timeline – rather than open-ended leasing, the agreement contemplated a five-year pathway toward buy-out.
• Shared Participation in Value Changes – if the property increased in value over time, both parties may benefit proportionate to their ownership interests.
• Alternative to Immediate Sale – the arrangement allowed Nathan to retain ownership exposure rather than selling during a period of higher rates.

Reviewing your Options?

Property owners experiencing rising mortgage costs sometimes review alternatives to traditional leasing or immediate sale. Co-investment and rent-to-buy models are examples of structures that may be explored in certain circumstances.

Understanding how these arrangements work — including the legal, financial and taxation implications — is an important first step.

The information contained in this article is general in nature and has been prepared without taking into account any person’s objectives, financial situation or needs. It does not constitute financial product advice, credit advice, taxation advice or legal advice. You should consider obtaining independent professional advice before entering into any property co-ownership or rent-to-buy arrangement.

Letterbox is a platform that facilitates introductions between parties. It does not provide financial services, credit assistance or investment advice.