By acting fast after missing a repayment, you increase your options and the opportunity to fix the situation.
You may think that missing a mortgage repayment is the worst thing that could happen, but the good news is that your lender is more than happy to help. The earlier your notify your lender the more options the have to help you.
Things you need to know when skipping a home loan repayment:
- An arrears management fee may be applied.
- A dishonour fee may also be charged and applies to periodic payments, direct debits and cheque payments from your account that are rejected due to insufficient funds.
- A default interest rate may be charged on overdue payments, which is higher than your mortgage interest rate.
- Your home loan may be withdrawn, forcing you to settle the full amount of the mortgage in cash.
- Enforcement costs will be passed onto you such as legal fees and court documents.
Contact your lender
The first thing you should do is contact your lender. They will then assess your situation and ask you:
- Why you missed a repayment
- How to plan to pay it back and where will the money come from
- How they can help you to get you back on track.
You might find it stressful and embarrassing to talk to your lender about why you missed a repayment, but remember that financial difficulty can happen to anyone. Taking action means that you are trying to fix it as soon as possible and is a positive sign in the eyes of the lender.
Every lender has different policies, but most will only take action if they've seen that a borrower has missed more than two repayments, but this will depend on your loan-to-value ratio (LVR):
- High LVR loans over 80% - generally two missed repayments
- Low LVR under 80% - generally three or more missed repayments.
The big four banks and most other lenders have hardship programs for borrowers who are experiencing financial difficulty. It is important that you talk to your lender and work with them, instead of looking for a quick exit strategy. You should also avoid borrowing more money or using a credit card, as you'll only compound your debt and your struggles to repay it.
Struggling with repayments? Refinance to a cheaper rate and lower your costs.
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What do lenders offer if you fall into financial hardship?
Lenders have unique departments within their organisations that are there to assist borrowers when they are going through a period of financial hardship.
Below are a selection of the lenders that offer some form of financial hardship assistance.
What if you miss more than one repayment?
If you miss more than one repayment you will need to explore your options:
- Make a repayment arrangement. Call for financial guidance and work out a new budget. Ensure that your new budget is realistic. If you've noticed that you cannot afford to make the repayments you may want to consider selling your home.
- Call or write to the lender. Make a note of the phone conversation and ask to be transferred to the financial hardship team. Show them your repayment arrangement and ask for the term of the loan to be extended. If you're uncomfortable with calling your lender, you can write a letter requesting financial hardship and attach all the required documentation.
- Complete a Statement of Financial Position. This is a document that allows your lender to see if whether or not you can afford your home loan repayments. You should complete this document with a financial counsellor because you need to include your essential expenses. If your State of Financial Position includes expenses that your lender might deem unnecessary, you need to question whether you can do without them. However, if your Statement of Financial Position shows that you can't afford your repayment arrangement, the lender may reject the application.
- Change loan terms. If the problem is short term, the lender can help by changing the terms of the loan. If the problem is long term, consider selling the home or refinancing
- Talk to the ombudsman. Borrowers not satisfied with the lender's decision can contact the Financial Ombudsman Service or the Credit and Investments Ombudsman
- Downsize to a cheaper home. If repayments are no longer affordable, one option is to consider moving to a more affordable house. Another option is to rent until finances are sorted
- Create a budget to repay. Take the time out to create a budget and carefully think about where your expenses are going. Getting a clear picture of this will help you manage your debts. Read our guide on the elements of a budget.
- Ask for outside assistance. Need extra guidance? Contact an Australian financial counsellor for free and confidential help.
|NSW||Consumer Credit Legal Centre||1800 007 007|
|TAS||Consumer Credit Helpline||1800 232 500|
|VIC||Moneyhelp||1800 007 007|
|WA||Consumer Credit Legal Service||(08) 9221 7066|
|NT and QLD||National Legal Aid||(03) 6236 3813|
What will your lender do if you continue to miss repayments?
There are processes your lender must follow before they can take legal action against you, which is why the sooner you approach your lender, the better. Your lender will send you a series of notifications and will try to repossess your home. It is important that during this time you seek out as much legal advice as you can. Below is the usual process:
Letter of demand
- A notice that you've missed a repayment
- You may have to negotiate a repayment plan or apply for a hardship variation
- If you disagree with the debt, or you do not owe the debt, you have a right to dispute it
- Try and catch up with your payments
- 30 days notice to catch up on your repayments
- You can pay the amount that is owed plus your usual repayment, or take a repayment holiday for up to six months
- Your lender cannot take recovery action against you until they take steps as well
- You may need to consider selling your home
Statement of claim
- Fixed number of days allocated for you to repay the debt
- Lodge a dispute with the Financial Ombudsman Service
- Consider getting free legal advice
- Consider selling the home
Apply for writ
- Your lender will apply for an order to take possession of your home
- Try to get free legal advice urgently
- Your lender will send you a letter telling you when a legal official will come and change your locks
- Continue getting free legal advice
- Your lender will send another legal official to evict you
- Continue seeking legal advice
Do I need to consider selling my home?
If you find that you won't be able to afford your repayments in the next couple of years, you may want to consider selling your home. The best time to sell your home is before your lender takes any legal action.
Deciding whether to selling your home is most difficult when:
- You're unemployed but trying to find a job
- You are ill and trying to recover but don't know when you'll fully recover
- Waiting for a payment for another reason
In these situations, one set of options to consider is:
- Make a repayment arrangement for up to six months and show it to your lender
- If by the end of the six months you still cannot make the repayments, consider the option of selling your house.
- Go back to the lender and negotiate another arrangement on the basis that you are selling your home. Give copies of evidence that you are selling your home to the lender. Include the contract with your real estate agent if you have one.
- If you sell the house, you need to tell your lender as soon as possible and provide evidence.
In the event that you sell your home, your lender should postpone all proceedings. This is because your loan balance should be paid off and such a sale allows you to avoid late and legal fees. Your credit rating shouldn't be affected in this circumstance. If this is not the case, get free legal advice or contact the Credit and Investments Ombudsman for information.
Use the equity left in your property to make other housing arrangements. If money is still tight, you could decide to rent or find temporary accommodation. If you have a stable stream of income again, it may be a good idea to purchase a cheaper home and make new financial arrangements with a lender.
Depending on how much equity you have, you may need to make more affordable housing options. There are some Government initiatives that may help;
- NSW New Home Grant Scheme. Offers a grant of $5,000 towards the purchase of a new home up to $650 000 in value. The grant also applies to homes off the plan with a value of up to $450 000.
- Sale of Home to Tenants Scheme. If you're staying within a NSW public housing complex and want to purchase the home, you can apply. Sales are subject to whether the property will be used for any future developments.
- Exemption from transfer duty. An exemption from transfer duty is available for tenants of Housing NSW and community housing providers if you purchase more than a 25 per cent share in the property.
- Australian Government Assistance. Under the Housing Affordability Fund, there are a few opportunities to be eligible for a rebate on the purchase price. To be considered, you need to have a low to moderate income. To date, this is only restricted to housing at Lake Macquarie.