Mortgage interest rates are rising, and many homeowners are feeling the pinch.
If you’re struggling with your mortgage repayments, taking action early is important. The sooner you seek help, the more options you’ll have to get back on track.
Here’s a comprehensive guide to understanding your options and avoiding mortgage default.
Let’s Get Straight to the Point
If you’re struggling with mortgage repayments, contact your lender as soon as possible to discuss financial hardship options, such as a hardship variation.
If denied, escalate the matter through their internal dispute resolution team or contact the Australian Financial Complaints Authority (AFCA). In some cases, selling your home may be a necessary step to avoid further financial strain.
Always seek professional advice and care for your mental health during this process. Early action gives you more options to manage mortgage stress and avoid default.
Reach Out to Your Lender for Financial Support
Most lenders have hardship teams dedicated to assisting customers experiencing financial difficulty.
If you struggle to make payments, contact your lender’s hardship team to discuss your options. This process is known as applying for a hardship variation.
1. How to Apply for a Hardship Variation
A hardship variation allows you to change the terms of your loan temporarily. This could include adjusting the repayment amount, extending the loan term, or pausing repayments.
To apply for a hardship variation:
- Contact your lender’s hardship officer. Provide details about your loan, including the account name, number, and the amount you pay each fortnight or month.
- Explain your financial difficulties. Be clear about why you struggle to meet your repayments, how long you expect your financial issues to last, and how much you can repay.
- Your lender must respond within 21 days of your request. If they need more information, they must reply within 21 days of you providing the details.
2. What to Do If Your Hardship Request Is Approved
If your lender agrees to the variation, they will outline the changes to your loan terms.
You might be offered a temporary reduction in repayments, a payment pause, or other alterations to suit your financial situation.
- If you can continue making payments, negotiate a repayment amount you can realistically afford.
- If your situation changes and you can’t meet the new terms, contact your lender immediately to discuss further options.
Next Steps:
- Make a plan to get back on track. Review your budget to identify areas for cutting back or managing expenses differently.
- Talk to utility providers about paying bills in instalments or finding better service deals.
- Seek professional help. Contact a financial advisor or visit the National Debt Helpline.
Steps to Take If Your Lender Denies Your Request
Your lender must provide a reason if they refuse your request for a hardship variation. If you disagree with their decision, there are further steps you can take.
1. Internal Dispute Resolution
Most lenders have an internal dispute resolution team that can review your case. Contact them if you believe your hardship request wasn’t adequately considered.
2. Australian Financial Complaints Authority (AFCA)
If you can’t reach an agreement with your lender, you can complain to the Australian Financial Complaints Authority (AFCA). AFCA offers free, independent dispute resolution services, helping you negotiate with your lender.
3. Check Your Insurance Coverage
If you need to catch up on payments due to an accident or illness, check if you have income protection or trauma insurance. These insurances, often included with superannuation, can help cover your repayments during tough times.
Consider Selling Your Home as a Last Resort
If your financial situation is unlikely to improve, consider selling your home. While this is a difficult decision, selling the property yourself is often better than having the lender take possession.
Selling it yourself typically results in a better sale price and avoids the legal costs that the lender might pass on to you.
Steps to Take If You Decide to Sell
- Inform your lender of your decision. They may ask for proof, such as a contract with a real estate agent, a contract of sale, or advertising details.
- Seek professional advice. Before selling, speak with a financial counsellor or seek legal advice to understand your options and the implications fully.
What Steps Can Your Lender Take If You Fall Behind?
Lenders must follow specific procedures before they can take possession of your home. Here’s a breakdown of the steps involved:
1. Default Notice
Your lender can issue a default notice when your repayment becomes overdue. However, it’s common for lenders to wait until the repayment is at least 90 days overdue.
The notice gives you 30 days to catch up on missed payments plus make the regular repayment.
- You can still apply for a hardship variation during this time.
2. After the Default Period
If you do not rectify the default within 30 days, your lender can start legal proceedings to recover the entire amount of your home loan.
You’ll be served with a Statement of Claim or summons, marking the beginning of legal action.
- Depending on your state or territory, you have a set number of days to file a defence or lodge a dispute.
- Seek legal advice immediately if you receive a Statement of Claim.
3. Eviction
If the lender obtains a court order to repossess your home, they will send you a Notice to Vacate. The court may also issue a Warrant for Possession, allowing a sheriff or bailiff to evict you and change the locks.
Note that this does not release you from the responsibility of repaying your loan. The lender may sell your property and pursue further legal action to recover any remaining balance.
Taking Care of Your Wellbeing During Financial Hardships
Financial stress can take a toll on your mental health. It’s important to seek help if you’re feeling overwhelmed. Talk to a financial counsellor, contact support services, and remember you don’t have to navigate this challenging time alone.
Conclusion
- Contact your lender when you face financial hardship to discuss a hardship variation.
- If refused, escalate the issue through the lender’s internal dispute resolution team or contact AFCA.
- Consider all options, including selling your home, before your lender takes possession.
- Take care of your mental health and seek support when needed.
These proactive steps allow you to navigate financial difficulties and work towards a more secure future.
Frequently Asked Questions
1. What should I do if I can’t afford my mortgage payments?
Contact your lender immediately to discuss your situation. You can apply for a hardship variation to change your loan terms and temporarily ease the financial pressure.
2. What is a hardship variation, and how do I apply for one?
A hardship variation allows you to modify your loan terms, such as reducing or pausing repayments. Contact your lender’s hardship officer to apply and explain your financial difficulties, how long they might last, and what you can afford to repay.
3. What if my lender refuses my hardship request?
If your lender denies your request, contact their internal dispute resolution team. If you still can’t reach an agreement, complain to the Australian Financial Complaints Authority (AFCA) for free, independent dispute resolution.
4. Can I sell my home if I can’t meet my mortgage obligations?
Yes, selling your home can be better than having your lender repossess it. You’ll likely get a better price and avoid legal costs, but speak to a financial counsellor before making this decision.
5. What happens if I ignore a default notice from my lender?
Ignoring a default notice can lead to legal action and potential eviction. Your lender may eventually repossess your home and sell it to recover the outstanding balance, which could result in further financial consequences.
