Sometimes, circumstances might turn to an undesirable direction, and you realise you are struggling to make your mortgage payments. It never feels good when you find yourself in that kind of situation, but the important thing is to work through your options and find a way to get back in control.
The first thing you should know is that you’re not alone. Economists have warned that over 800,000 Australian borrowers could face financial stress, according to 9news.com.au in March 2023.
How did it come to this? In recent years, Australia has experienced record low cash rates. This meant that property owners were able to enjoy low interest rates. It also meant borrowers could and did borrow more to purchase their homes, leading to larger mortgages.
Now, as the Reserve Bank raises the cash rate to combat inflation, these large mortgages have led to higher home loan repayments and financial stress for some borrowers.
In this article, we’ll discuss what you can do if you’re falling behind on your repayments and how you can get back on track.
If you think you’re at risk of missing your mortgage payments, don’t panic, there are a number of steps you can take.
If you have missed or think you might miss a loan repayment, then you should ask a mortgage broker to contact your lender as soon as possible. Lenders will generally be more understanding and willing to help if you keep them in the loop. You, your broker and your lender can then work together to try and find a solution Make sure your lender knows why you won’t be able to make your repayments. This could be because you have recently lost your job, were diagnosed with a medical condition, suffered an injury, are going through a relationship break-up, aren’t able to keep up with rising costs with your current income, had a recent addition to your family, or other reasons.
You might consider:
Refinancing is the process of transferring your home loan from one bank to another. You may consider refinancing to take advantage of competitive rates or reduce your fees by changing to a loan with fewer features, relieving some of your financial stress with lower repayments. Be sure to look at the terms and conditions of refinancing though, as you may need to pay a fee, especially if you are on a fixed rate and are breaking it early.
If you’d like help with these lender conversations, a mortgage broker can be a powerful ally in any negotiations or simply highlighting all your options. For any assistance, speak to a Nectar broker in your area.
If you’re having a hard time making these decisions or if you’re in a tight spot, then you should consider speaking with a financial advisor. They are the most qualified when it comes to giving advice that will help your financial well-being over the long term. They can scrutinise your entire financial portfolio and provide recommendations that you can act on. Some recommendations may include selling shares, prioritising certain bills and budgeting. They might also give you advice on what types of investments you could make, what accounts you could open to help increase your income in the long term, advice on tax deductions and other advice that might help you save more and get back on top of your mortgage repayments.
Your Nectar broker can recommend a financial planner if you need some advice.
If you’re unable to find a clear solution to ease your mortgage stress, you may want to talk to your lender about their financial hardship options. Most lenders have dedicated teams that work on helping borrowers struggling to make repayments. They might be able to temporarily pause your repayments or reduce them. To initiate this process, contact your lender (or ask your mortgage broker to), let them know why you’re having trouble making your payments and how long it might take for you to resolve your financial issues. They may ask for more information.
While repayment pauses or reductions can offer immediate relief, it’s important to understand the long-term impacts of adding to the length of your loan or accruing more interest.
Speak to a Nectar mortgage broker for an explanation of the pros and cons of repayment pauses.
This should be your last resort, but if it appears that your financial circumstances are not going to improve for the foreseeable future, then you still have the option of selling your property. As long as your equity is positive, selling your property could grant you financial relief. This is a big decision to make, so be sure to seek expert advice. You could also consider renting out your property for a while to cover mortgage repayments and rent yourself somewhere cheaper.
If you’re having problems meeting your repayments, consider talking with your friendly Nectar mortgage broker. They can liaise with your lender on your behalf and connect you with additional professionals to support you.
Making a budget can help you put things in perspective. When you write down your income and your fixed expenses (like mortgage payments, credit card debt payments, food, utilities and so on), you can plan out where your money needs to go, and where you can consider saving/what you can do without (like subscription services, luxury items, etc).
When you have several loans like credit card debt, personal loans, car loans, etc., then consolidating your loans with your home loan may be helpful. By consolidating your debts, you don’t need to worry about remembering to pay off all your different loans and you’ll often get a lower interest rate too. That way you pay less overall than if you were paying all your debts separately and save some money for later.
When you are facing financial difficulty, the sooner you can act, the better.
If you think you won’t be able to make your repayments on time, then contact your mortgage broker or lender as soon as you can. Your lender will be much more likely to help you if you tell them your situation early on.
Defaulting on repayments is something to avoid if at all possible. But don’t forget, if you need any help or are unsure how to move forward with your mortgage, our friendly Nectar brokers are always here to listen. Get in touch for a no-obligation appointment today.