Struggling to make your home loan payments – mortgage stress. Even when it looks impossible there are options.

If you are having problems paying your mortgage and you are behind in repayments and the bank wants to repossess your home, we can help stop the bank and negotiate an outcome.

One of the first things a lender checks when considering a home loan refinance application is your past repayment performance and they do this by checking your home loan and credit card statements, typically for the last 6 months. They are looking for signs that you are not coping as after all they don’t really want to take on someone else’s risk.

A missed payment on your credit card looks bad but can often be explained however a missed payment on your mortgage looks very bad while 2 missed payments is fatal. By this stage you have virtually no option but to try and renegotiate some sort of payment relief with your existing lender… in these circumstances you have very little bargaining power and have to rely largely on their good will.

What if it’s not too late?

People experience mortgage stress due to many reasons such as retrenchment, reduction in income, illness, business failure or simply biting off more than they can chew … bad budgeting. You might think that your only option is to find a lower interest rate and while this may help it may not be the only or the best solution.

If you have had your mortgage for over 5 years then a simple refinance to a new loan term can offer immediate help. Let’s use an example of a $250,000 mortgage with 22 years to run at an interest rate of say 5.50 percent, your repayments will be $1634 per month. By simply refinancing the same amount at the same interest rate to 30 years the repayments fall to $1420 per month – a reduction in repayments of $49 per week.

Now let’s make that same loan interest only and now your repayments fall to $1145 per month a reduction in repayments of $112 per week over your original position. Remember you are not saving money – in fact you will be paying more in the long run but you are taking some of the pressure off in the hope that things will improve in the future.

My income has fallen what are my options?

The options above still apply but if your income has fallen then you may struggle to demonstrate that you can afford the new loan repayments. This is because lenders don’t use the immediate benefit of ‘interest only’ they have to use P&I when calculating. What’s more lenders use an artificially high interest rate when calculating your ability to service the debt – in case of interest rate increases in future.

This ‘servicing rate’ can be 2.5 percent higher than the actual rate you will be paying. However there are some (not many) lenders who will use a much lower interest rate if you agree to a fixed interest rate home loan and strangely it may mean you are paying a higher interest rate but you can borrow more. Of course we would only suggest this outcome once we had exhausted all of the lower cost option.

In summary

Get advice before things get out of hand and while you still have some room to move. Don’t just jump at the first low interest rate offer you can find as there may be much better outcome for both the short term and the long term. Don’t talk to your bank until you have spoken to your mortgage broker there is no point alerting them to your difficulty until you are sure as to what other options you have. We will be considering your current lenders products and options – and their prior performance as well as other lenders.

If worse comes to worse then you may need to sell the property, it is better if you list the property as a private sale than the bank lists it as a mortgagee in possession. Don’t rush into this, get legal advice and make sure that your broker has exhausted every other possibility.

If you are going through mortgage stress and unsure about the options available give us a call now on 1300 858 698 or get in touch through the contact page

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