Life throws us obstacles now and then and it’s not uncommon for some of these to challenge our financial security. Mortgage stress – when we struggle to meet our home loan repayments – probably affects more people than you think. The Reserve Bank of Australia’s series of interest rate hikes aimed at curbing inflation, has significantly increased the cost of borrowing. Coupled with the rising cost of living, this has pushed many homeowners to the brink.
A mortgage is essentially a “statutory charge” in favour of a lender over property held in the borrower’s name. The mortgage secures the repayment of the money loaned, and the associated loan contract typically gives the lender the right to repossess and sell the property if repayments are not made. Missing a mortgage payment, however, may not necessarily mean you will lose your home. A mortgage is a long-term commitment, and your lender may be prepared to work with you to find a solution.
The information in this article is general only and you should obtain professional advice relevant to your individual circumstances.
I’ve missed a loan payment, what do I do?
Let your lender know. This is an important first step. Contact your lender and let them know you are aware of the situation and plan to fix it if you can. Better still, if you know in advance that you will not be able to make a payment when it is due, be proactive.
Banks and building societies have specific areas that deal with financial hardship and loan defaults and may have hardship programs in place to assist borrowers facing financial difficulties. As it is in both parties’ interests to get things back on track, they are generally willing to assist. The quicker you act, the more likely you might find a solution and available options.
If your financial problems are short-term and you are genuine in your attempts to repay the loan, you may be able to arrange to temporarily defer payments, take a repayment holiday, or extend the term of the loan. Refinancing may also be an option but it’s important to seek financial advice when taking this path as you don’t want to be financially worse off in the long run.
Each case is assessed on its own merits. Don’t panic, and talk to your lender before you consider short-term, high-risk alternatives such as using credit cards or taking out further personal loans.
What rights does the lender have when I can’t pay my mortgage?
By holding a registered mortgage over your property, a lender (mortgagee) has a statutory right to take certain action if you default in your loan repayments. A power of sale is generally written into the loan contract and allows the mortgagee to sell the property to recover the mortgage debt and associated costs.
The loan contract may set out additional matters such as the right to charge a higher rate of interest when the account is in arrears (default interest), the right to charge additional fees and to be reimbursed for the costs of chasing you for loan payments.
If you can no longer comply with the terms and conditions of the loan the lender may:
- exercise power of sale, take possession of the property and/or foreclose on the property, selling it to recover the debt together with interest and associated costs such as agent’s fees, legal fees and any costs of insuring and maintaining the property;
- if the proceeds of sale do not cover the debt due, sue each of the borrowers personally for the balance.
What are my rights?
The mortgagee must ensure due process is taken before exercising a power of sale.
Generally, borrowers (mortgagors) must be given formal written notice and allowed 30 days to remedy a default before action is taken. Notices must be correctly served on each defaulting mortgagor to the addresses specified in the mortgage documents.
The mortgagee must act in good faith towards the mortgagor. This means that the mortgagee must take reasonable steps to sell the property at market value or for the best price reasonably possible in the circumstances. A mortgagee should not act recklessly or carelessly during the selling process.
Getting help
If you’re struggling, it’s important to be proactive – reach out to your lender, a financial counsellor, or a trusted friend or family member. There is support available.
If you have received a default notice and you cannot repay the amount required, it is time to seek assistance if you have not already done so.
If you believe you have been unfairly treated by your lender or have not been given due process, you may be able to lodge a dispute with the Australian Financial Complaints Authority (AFCA). The AFCA is an independent complaint resolution scheme that can deal with a range of complaints against financial institutions.
Mortgage stress is a complex issue with no easy solutions and no one-size-fits-all approach. Understanding your rights as a borrower, being proactive when facing financial difficulties, and accessing support services can help provide struggling homeowners with greater options when facing mortgage stress. If you or someone you know wants more information or needs help or advice, please contact us on 03 9726 9569 or email [email protected].