I Can’t Pay My Mortgage – What Do I Do?

It can be a scary time to have a mortgage. The cost of living in Australia is rising and interest rates don’t seem to be falling. Plus, we’re only just starting to recover from a worldwide pandemic that brought its own set of pressures.

It certainly feels like we’re all trying to stretch our dollars a bit further and find new ways to make and save money. However, there’s no denying that many Australian homeowners are feeling the pinch, and some are struggling to meet their mortgage repayments.

If you’re in this boat, you’re not alone. A study in February found that 7% of mortgage holders have missed a loan repayment in the last six months, and the cash rate has been increased multiple times since then.

What happens if I miss a mortgage repayment?

Missing a mortgage repayment can be a confronting situation. At worst, missing mortgage repayments (otherwise known as defaulting on your loan) can put you at risk of losing your home. However, it’s important to note that this generally only happens if you fail to make your repayments over a lengthy period and you have made no effort to rectify the situation.

Below is a timeline that outlines the general process lenders follow when it comes to addressing late or missed loan repayments. (Please note this timeline is general in nature and some lenders may implement different processes. For this reason, we suggest alerting your lender to any financial difficulties you may be experiencing as soon as you can).

Missed repayment timeline

1-7 days after missing a mortgage repayment: Your lender will likely remind you via SMS, email, letter or phone that your mortgage payment is due. If you can afford to pay it and have just missed the payment due to error, you can pay the overdue amount and likely avoid any adverse

repercussions. Lenders understand that missing or even forgetting a payment can happen and are usually happy to work with you to resolve the issue quickly. If, due to financial hardship, you can’t make the payment, you should inform your lender immediately.

7-14 days late: Most lenders provide a grace period for late repayments, however generally once 7-14 days have passed, they may charge a late fee. This fee is usually added to your next repayment. Failing to pay this fee will mean your mortgage is not up to date.

More than 14 days late: If your mortgage repayment is more than 14 days overdue, this will likely be recorded as a ‘late payment’ on your credit report. This may negatively impact your credit score and may affect your ability to refinance or secure another loan in the future.

60-90 days late: When your mortgage repayments are anywhere between 60-90 days overdue, you’ll generally receive a default notice and be given 30 days to pay the outstanding amount. This 60 to 90-day window varies depending on the lender, however many lenders won’t issue a default notice until after 90 days have passed. This default will then be listed on your credit report. If you are in a position to repay what you owe, do this as soon as you can. If you can’t repay the debt, we suggest contacting your lender to discuss your options.

90-120+ days late: If you fail to take any action for 30 days after receiving a default notice, your lender will likely take legal action against you to claim back what is owed. This can lead to further fees being charged or even the repossession of your home. However, it’s important to note that there are several courses of action you can take before the situation reaches this point.

I missed a loan repayment or defaulted on my loan, what can I do?

Contact your lender’s financial hardship team
It can be challenging admitting to your lender that you aren’t able to make a payment, but having a discussion about your situation as soon as possible will likely increase the number of options available to you. Lenders typically want to retain you as a customer and can offer solutions that might help.

Chat to your lender about extending your repayment window
One of the options that might be available to you is an extension of your loan repayment window. If you require more time to pay off your loan and would like to lower your monthly repayments, you can ask to lengthen your home loan term. For example, if you extend your 25-year loan term to 30 years, your monthly repayments will be reduced. However, it’s important to note that whilst extending your loan term will lower your monthly repayments in the short term, you’ll be charged interest over a longer period, meaning you’ll likely end up paying more overall.

Apply for a repayment holiday
We all know it’s been a weird few years, and financial institutions understand this. If the COVID – 19 pandemic has affected your capacity to make your repayments on time, you may be able to apply for a “repayment holiday”, which in effect pauses your home loan repayment schedule for a set period of time. It’s worth noting that while a repayment holiday can take the pressure off and help you to find your feet in the short-term, you will still accrue interest during the paused period which will be added to your overall loan balance.

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