What to do if you are in mortgage stress

You need to consider selling your home if:

1. You cannot afford your loan repayments

2. You will be unable to afford your loan repayments for some years to come

You need to make this decision as early as possible because it is better to sell your home yourself rather than have the lender sell the home for you. You are more likely to get a better price for your home and avoid lots of legal costs if you sell your own home.

The decision whether to sell your home is most difficult when:

1. You are unemployed and trying to get a job, or

2. You are ill and trying to get well but you just don’t know when you will be well, or

3. You are waiting for a compensation payment.

In these situations you are hoping that you can make the loan repayments soon but you just don’t know when this will happen. The difficulty is that as time goes on things are going to get worse and you will get further and further behind on your loan repayments and incur lots of extra interest.

In these circumstances, it is recommended that you:

1. Make a repayment arrangement with the lender for up to six months;

2. If by the end of the six months you still cannot make the loan repayments you should put your home on the market;

3. Go back to the lender and negotiate a further arrangement on the basis you are selling your home.

Remember: If you get a job, get well or get a large lump sum of money before your home sells you still have the option of trying to negotiate a further arrangement on the basis you can now pay the loan (as long as the lender does not have a court judgment).

Important: You should file in an independent external dispute resolution scheme (EDR) if:

• you are unable to make a repayment arrangement with the lender or
• the lender is threatening to commence legal action or
• the lender has issued you with a statement of claim but has not obtained a court judgment

When do I have to make a decision?

You need to make a decision to sell your home as early as possible but preferably before the lender commences any legal proceedings. It is never too late to ask for time to sell, but the lender is less likely to agree later in the enforcement process and enforcement costs will be added to your loan as the legal proceedings progress.

You need to give yourself as much time as possible to sell your home and get a good price for it.

I’ve decided to sell my home, what do I do now?

Step 1

You need to place your home on the market. You need to price the home realistically so that it will sell but for the best price possible. If you are using a real estate agent you should explain what time frame you need to sell the home within. This will usually be under six months but could be under three months depending on what arrangement you make with your lender.

Step 2

You need to give copies of evidence that you are selling your home to the lender. This evidence should include (where available):

(a) Copy of the contract with your real estate agent

(b) Evidence of advertising of your home

(c) Front page of the contract of sale

(d) Marketing plan

Step 3

Negotiate a repayment arrangement on the grounds of financial hardship with your lender. See Fact Sheet: Financial Hardship and Sample Letter: Financial Hardship.

You are negotiating the arrangement on the basis that:

(a) You are in financial hardship

(b) You can make regular repayments of what you can afford until the home is sold

(c) You have a reasonable time to exchange contracts for the sale of your home (ask for six months, but you may need to consider agreeing to three to four months).

(d) When the home is sold your loan will be repaid.

Step 4

If the lender:

(a) Will not agree to the proposed variation, or

(b) Threatens legal action, or

(c) Commences legal action

You need to consider filing in EDR and get advice.

What if my home is worth less than the amount of my loan?

If you think your home may be worth less than the amount you owe on your home loan, get legal advice.

For the 20 worst-performing suburbs for mortgage arrears, click here.