Are you late on your mortgage repayments?

Not being able to meet mortgage payments is every homeowner’s worst fear. However, it can happen all too easily, with close to 30% of Australian households now under mortgage stress. Unexpected illness, maternity leave, job loss or sudden interest rate hikes can all play a role. If you are falling seriously behind, it’s time to take action to give yourself the best shot at keeping your home.

Q: What will a lender do if I fall behind in my mortgage payments?

Legally, there are a number of steps a lender must take before they can pursue legal action against you, including evicting you and repossessing your home. It’s important to act as early in the process as possible, ideally to repay what you owe in full, or make a repayment arrangement with the lender that will stop them from proceeding to legal action.

Depending on your circumstances you may be able to get a temporary freeze on your repayments while you catch up on the money you owe. It’s also critical to seek legal advice during this process.

Step 1 – The lender will contact you about your missed payments. This will typically be by letter. The best solution is obviously to pay in full. If this is not possible, contact your lender as soon as possible and ask them to temporarily reduce or delay your repayments. Confirm this in writing using a hardship variation. If you are met with a negative or no response, you can lodge a complaint with the lender’s internal complaint department or contact the Financial Ombudsman Service (FOS) on 1800 367 287 or the Credit and Investments Ombudsman (CIO) on 1800 138 422 for advice.

Step 2 – The lender will send you a default notice, giving you a minimum of 30 days to meet your repayments owed. If you don’t pay in full by the time this notice period expires, your whole loan becomes due and payable. Your lender can start legal action to repossess your home and sell it. Be aware that if your property is rented, vacant or undeveloped land, a lender can take possession without going to court. Now is the time to seek legal advice urgently if you haven’t already. There are free legal services available to you.

Step 3 – The lender takes you to court. Once your default notice period has expired, your lender can serve you with court proceedings to take possession of your home and sell it. At this point you have a small window of opportunity to act by filing a defence or going to court.

Step 4 – The lender applies for a court order. If you have not taken action, the lender can now apply to the court to take possession of your home. Seek legal advice promptly.

Step 5 – The lender sends you a letter telling you to move out. This letter is also known as a Notice to Vacate or a Warrant for Possession. This happens when the lender has obtained a court order allowing them to take possession of your home. In some limited circumstances, you may be able to complain to the Credit and Investments Ombudsman seeking a stay.

Step 6 – The lender has you evicted from your home. At this stage the lender can send a Sheriff (or Bailiff) to your home to forcibly evict you and change the locks. They will now be able to sell your home to repay your debt.

How can I manage my mortgage better in the future? 

A few tips to help you better manage your mortgage repayments include:

• Make a budget and cut back on any unnecessary expenses.
• Consider renting out a room to a lodger, student or via Airbnb for extra income.
• Or, rent out your home entirely and live somewhere cheaper while you catch up on your repayments.
• Consider refinancing your home loan or changing your loan to an interest-only loan for a fixed period to reduce your repayments.
• If you’re really struggling, seek advice as soon as possible, taking control of the problem is key and there are free legal services which may be able to help you.
• Discuss your situation with your creditor they should be able to assist with a plan to get you back on track (e.g. a new payment plan or moratorium)
• Find out if you are a candidate for mortgage assistance.

Do you need help managing your debt? Find out more about our debt solutions.