The Reserve Bank of Australia has raised the cash target rate 13 times in the past two years. Most people with a mortgage have experienced a significant increase in their monthly repayments. In addition, the cost of food, petrol, electricity, and other essential services have skyrocketed. Many people are living week to week, and some are already unable to meet their living costs.
If you are struggling to make your home loan repayments, there is help available. If you are behind in your payments (or about to be) then you should act quickly. Your lender may agree to accept reduced repayments while you are in financial hardship. Here are 5 steps to take if you can’t pay your mortgage:
If you are finding it hard to pay your bills or meet your living expenses, the first thing you should do is write down all your income and expenses in a budget. This will help you to see if you can cut back on some expenses while you get on top of your bills. The Australian Government Money Smart website contains information on how to plan a budget.
Your home loan repayments should be your top priority because if you do not pay, the lender can take your home (after completing certain steps). Try to negotiate a payment plan on smaller debts like credit cards or utilities so you can free up your finances to pay your mortgage.
If you are unable to pay the full amount due on your mortgage each month, then work out what you can afford to pay.
TIP: If you can’t pay your mortgage in full, it is better to pay a smaller amount on a regular basis than pay nothing at all. Some people pay a smaller amount on a regular basis and then make additional ‘irregular’ payments on top.
The law provides important rights and options for persons who experience financial hardship. You have the right to ask your lender for hardship assistance and to put in place a repayment arrangement that you can afford.
You may be able to ask your lender to:
Your lender will have a hardship department that you can contact to discuss your options. It is best to have an idea of what kind of support you would like before you contact the bank. For example, if you have recently had an accident and will be off work for two months, you may wish to ask the lender to temporarily pause your payments while you recover.
TIP: The National Consumer Credit Protection Act 2009 (Cth) only applies to individuals experiencing hardship on their personal loans. It does not apply to companies, and it does not apply to business loans. The Small Business Commissioner website provides guidance for a business in financial hardship.
After you work out your budget and think about what kind of assistance you want to ask for, it is time to contact your lender’s hardship department. Explain to the lender that you are in financial hardship and the reason why. Tell the lender you can’t pay your mortgage. Let them know you need help with the repayments and your proposal (eg to pause the repayments for two months while you recover from your accident).
Make sure you don’t agree to a hardship plan that you cannot meet. If you know you will be off work for two months and unable to make the repayments, then don’t agree to a one-month hardship plan. If your hardship is permanent (such as a diagnosis with a long-term illness) then ask for time to sell your home yourself rather than allowing the bank to foreclose on the home – this will usually allow you to get a better asking price.
The lender may ask you for more information on your hardship, or to provide documents such as payslips, medical certificates, or a statement of your financial position (a document showing your incomes/expenses). You must provide the information to them.
TIP: It is VERY important to have a realistic plan and discuss this with the lender, because the lender does not have to agree to a hardship change if they do not think you can afford to repay the loan.
The lender must give you a response to your request for a hardship plan within 21 days of you contacting them, or providing them with the additional information they requested.
The lender must tell you:
TIP: If this is your first hardship requests in the past 4 months, the lender cannot take steps to enforce the loan contract (such as taking possession of your home) until they respond to the hardship request.
If your lender will not agree to a repayment arrangement (hardship plan) – or you do not hear from them at all within the 21 days after your request – then you can have the decision reviewed by the Australian Financial Complaints Authority (AFCA).
At the time you lodge your complaint with AFCA, they will also ask you to complete a statement of financial position (like a budget) and ask you how you plan to repay the debt – that’s why it is very important to complete steps 1 and 2 above.
AFCA is free and independent dispute resolution service. After they receive your complaint, they will contact your lender and ask them to try to find a solution with you. If an agreement cannot be made:
We can assist if you are refinancing your mortgage or selling your property. We offer a free 15 minute consultation for clients.
