How to Handle Missing a Mortgage Repayment Like a Boss
We know what you’re thinking – missing a mortgage repayment or two is possibly the worst thing that could happen when taking out a loan; a situation that's stressful and commonly considered as embarrassing – and one that needs to be avoided at all costs (pardon the pun). However, financial difficulty can happen to anyone and is more common than you think.
The key to handling this worst-case scenario is acting to fix your issue as soon as possible – a positive sign in the eyes of the lender.
Missing a mortgage repayment can be affected by fluctuating rates or a change in circumstances – and the pressure to maintain regular repayments can be overwhelming. But what can you do before it gets worse?
Step One: Breathe. Help is available.
If you’re about to miss a repayment or you have already, remember there is always help available. By failing to reach out or resolve the situation, the lender may be forced into acting against you, which could include: an arrears management fee applied, higher default rates charged on missed repayments, forcing a property sale and enforcing charges and court or legal costs.
The four big banks specifically have hardship programmes for borrowers who are experiencing financial difficulty.
Step Two: Contact your broker
The earlier you contact your broker, the more options they will have to assist you with. They’ll assess your situation and ask you why you missed a repayment, how you plan to pay it back and where the money will come from, liaise with the lender and discuss options on how to get you back on track.
Tip: Banks generally only take action if they’ve seen that a borrower has missed two or more repayments – but that also depends on the LVR (loan to value ratio) of the loan. Loans with a high LVR over 80% will be acted upon if two repayments are missed whereas loans with a LVR under 80% will be acted upon with three or more. Keep in mind that no two lenders are the same - their policies differ – and it also depends on your situation.
Step Three: Assess the options given to you
Begin with the question of how you’re going to catch up with repayments. Does this mean you will need to sell some of your assets to raise the extra money or start a second job to save some extra funds?
Change your loan terms. If the problem is short term, the lender may be able to help by changing the terms of your loan. If the problem is long term, you might consider selling the home and downsizing to something you can afford.
Consider renting out a room; while not the most attractive solution, you may be able to breathe easier and lessen the stress if you convert office space into another bedroom that you can rent out to a new housemate.
Step Four: Avoid further debt
Speak with your broker about devising a plan that stems further than just making your next repayment. Stay away from borrowing more money or using a credit card – getting into deeper debt when you can’t afford your repayments isn’t going to help in the short or long term.
Though the temptation may be there, avoid borrowing money from family or friends. Not only will you be in more debt, but the added social pressure of paying them back can increase your stress. Putting relationships at stake can be more damaging than a bankruptcy.
Think twice before consolidating your debts or switching home loans. The risk surrounding the consolidation of debts is much higher when all loans are together. Furthermore, the fees involved with switching loans can take a while to recover from. Only consider it if your trusted broker advises that it will benefit your finances.
If you’re struggling with your mortgage repayments, give us a call on (08) 9417 3399 to speak with one of our brokers to discuss your options.