Victoria’s mortgage delinquency on the rise, how you can stay above water
Recent data from Fitch Ratings Agency shows that mortgage delinquencies are on the increase in Victoria. At a time when interest rates are low and house prices are generally increasing, this comes as a surprise.
Victoria as a whole has performed the worst, seeing a delinquency rate of 1.37% as of March 2014. However, it was the only state or territory to see negative performance in the year to March.
Unexpected events and costs in life, as well as changes in your situation (such as losing your job) can cause you to suddenly be unable to pay your mortgage. While Property Observer suggests that you should prepare for any eventualities – some will not until the situation comes to a missed repayment.
If you are finding yourself struggling with repayment then there are some things you can do to keep your head above water.
Firstly, this is what is likely to happen if you stop paying your mortgage.
If you miss a repayment, the first thing you’ll likely receive is notification from your lender – often in the form of a letter.
If you then fail to pay, you will likely be issued a default notice that gives you 30 days to get back up to date with your mortgage.
If you then do not pay, you may be issued a statement of claim or a summons for the debt, or repossession of your property.
After this, you will receive a legal order to take possession of your home. After this, you will then see an authority come to evict you and change your locks.
Don’t think that lenders actively enjoy putting anyone through this process, and don’t think that there’s nowhere you can go for help. As you can tell from the above, you will not be immediately pushed out of your property, however you do need to act to stop the process from happening.
Firstly, if you think you’re going to miss a repayment or if you do miss a repayment – get in touch with your lender immediately. Regular, clear communication is going to assist you with stopping the above process from occurring.
HARDSHIP VARIATIONS
If you are in difficult circumstances, and your loan is at a certain value, you may be able to apply to your lender for a hardship variation.
The government lists what the contract value must be, however if your contract was entered into on or after March 2013 you can apply for a hardship variation regardless of your loan’s value.
Essentially, your lender will vary the terms of your contract. This will make your repayments more affordable, however is likely to extend the loan term and cause more interest to be paid overall. However, this stops you losing your property – and there is the possibility of making extra payments down the track when you’re in a better situation.
Lenders should be fairly helpful with this process. If you find yourself unfairly refused a variation, contact the financial ombudsman.
Get your information organised for when you approach your lender – many of them will want to see payslips, employment letters, budget plans (for instance, this is the Commonwealth Bank's required budget form), accountant’s letter and other appropriate details to your case (for instance, a doctor’s certificate or a Centrelink statement). Financial counsellors can often speak to the bank on your behalf.
CHECK INSURANCES
If you were sick, or suddenly found yourself unemployed, had you previously taken out an insurance policy to cover this? It may be time to put in a claim to cover yourself for your mortgage if you’d sufficiently covered yourself previously. Double check your policies.
CONSOLIDATING AND REFINANCING
Consolidating and refinancing to bring down your overall repayments and to manage them can suit some, however only if you’ll pay less in fees and interest. It may only be a short-term fix, and you will still need to be able to meet the repayments, plus it may cost you more over the long-term. Watch for hidden fees and costs.
SELLING OR RENTING YOUR PROPERTY
This will not be an option for everyone, but if it’s looking as though you may not be able to afford the home, particularly in the long-term, it may be time to downsize or to look to renting. Beware; this is a costly process, so you will want to run your numbers carefully beforehand. Also remember that it can take a lengthy period of time to sell a property for a price you are happy with, and if the property has dropped in value then you will be facing debt even on the other end of the transaction.
Another alternative is to rent out a room in your house to create some additional income to assist with the repayments.
SPEAK TO AN INDEPENDENT PROFESSIONAL
There are many professionals available for free across Australia, both in terms of finance and legal assistance, that can help you if you get into hardship.
Financial counsellors can provide assistance and information, while free legal advice can assist with credit disputes and debt recovery through courts.
PLAN AHEAD
Remember, mortgage repayments are about more than just the next one coming up. You’ll need to be putting into place a forward-thinking budget and plan to ensure you’re in a comfortable situation.
The government’s Money Smart suggests avoiding borrowing more money or using credit cards, borrowing from friends or family, consolidating/refinancing if there are hidden fees and costs, switching home loans or accessing your super.
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