Record low-interest rates, generous tax breaks and schemes to supplement loan deposits over the last several years made entering the property market as a first home-buyer easier and more affordable. With inflation causing those low-interest rates to skyrocket, there may be mounting anxiety and concerns about mortgage repayments.
With over 1 million home loans signed off over the past few years, an estimated 280,000 Australians with home loans are believed to have signed up for loans deemed now to be ‘risky’.
These included home loans that borrowed up to six times more than their annual income or have loan-to-value ratios of more than 90 per cent.
If you are struggling to pay your mortgage repayments or are concerned about what further increases to your interest rate could do, there are a few options available to you.
You can refinance your home loan (switching lenders) to take advantage of a lower interest rate. Before you switch, you must ensure that the benefits outweigh the costs. Consider:
- Asking your current lender if a better deal is available, as they may reduce the interest rate on your current loan to keep your business.
- Negotiating the new loan’s length to avoid paying more interest over a longer period than the original loan.
- Weighing up the cost of the lender’s mortgage insurance.
You should also compare the costs of switching your mortgage. This should include comparing the average interest rate available to these loans and what the cost of the fees/charges may be.
If you’re on a fixed-rate mortgage, you may not be eligible to do this (as you may be locked into your loan and have to pay a ‘break cost’ or a termination fee).
If refinancing is not an option and there is real concern about potentially defaulting on your loan, seek help as soon as possible. All lenders have hardship terms ready to help customers in tough times.
You may be able to change the terms of your loan, or temporarily pause or reduce your repayments. This is called a hardship variation.
If you defer repayments, you will still owe all your missed payments, including interest. If you can afford it, keep making payments, even if they are smaller ones. This will help keep the cost of your mortgage down.
Apply For A Hardship Variation
- Contact your lender’s ‘hardship officer’.
- Give the details of your loan (account name and number, and the amount you pay each fortnight or month).
- Say that you want to change your loan repayments because you are experiencing hardship.
- Explain why you are having difficulties making payments. Tell them how long you think your financial problems will continue and how much you can afford to repay.
Your lender must give a reason if they refuse your hardship request. Contact their internal dispute resolution team if you’re not happy with their response.
If you can’t reach an agreement, you should contact the Australian Financial Complaints Authority (AFCA) to make a complaint and get free, independent dispute resolution.