How to handle mortgage repayments when facing financial hardship

4 mins
Updated
December 20, 2024

Life is unpredictable, and financial hardships can arise unexpectedly, making it difficult to meet mortgage repayments. Whether due to job loss, illness, or other challenges, it’s crucial to act quickly and strategically to protect your financial wellbeing and your home. Here’s a guide to managing mortgage repayments during tough times.

Step 1: Recognise the signs of financial hardship

The first step in addressing financial hardship is recognizing when it’s happening. Signs may include:

  • Struggling to pay bills on time.
  • Relying on credit cards or loans for everyday expenses.
  • Falling behind on mortgage repayments.

Acknowledging these signs early allows you to seek solutions before the situation worsens.

‍

Step 2: Contact your mortgage broker or lender immediately

Most lenders have hardship assistance programs designed to support borrowers facing financial challenges. Reach out to your lender as soon as possible and explain your situation. Key points to discuss include:

  • The nature of your financial hardship (e.g., loss of income, medical expenses).
  • Your current income and expenses.
  • How long you expect the hardship to last.

Being transparent and proactive shows your commitment to resolving the issue.

‍

Step 3: Explore hardship assistance options

Lenders may offer several solutions to help you manage your mortgage during tough times. Common options include:

  • Repayment holidays: A repayment holiday allows you to temporarily pause or reduce your mortgage repayments. This option provides short-term relief but may increase the total cost of your loan due to accrued interest.
  • Loan restructuring: Loan restructuring involves modifying the terms of your mortgage to make repayments more manageable. This could include extending the loan term to lower monthly repayments or switching to an interest-only repayment plan for a period.
  • Reduced repayments: Some lenders may allow you to make smaller repayments for a set period, easing immediate financial pressure while you stabilise your situation.
  • Deferral of arrears: If you’ve fallen behind on repayments, your lender might agree to defer the arrears and incorporate them into future payments.

‍

Step 4: Review your budget

Take a close look at your income and expenses to identify areas where you can cut back. Strategies include:

  • Reducing discretionary spending, such as dining out or subscriptions.
  • Seeking temporary income sources, like freelance work or selling unused items.
  • Prioritizing essential expenses and minimizing non-essential ones.

A financial counselor can provide guidance and help you create a budget tailored to your circumstances.

‍

Step 5: Consider refinancing

If your financial hardship is expected to be long-term, refinancing your mortgage may be an option. This involves replacing your current loan with a new one that has more favorable terms, such as a lower interest rate or extended loan term. Keep in mind that refinancing may involve fees, so weigh the costs and benefits carefully.

‍

Step 6: Explore Government Assistance Programs

In Australia, there are government programs and resources available to support individuals facing financial hardship, including:

  • Financial Counseling Services: Free and confidential advice to help manage debt and negotiate with creditors.
  • National Debt Helpline: A resource for Australians struggling with debt and financial stress.
  • Early Release of Superannuation: In certain cases, you may be able to access your superannuation early to cover mortgage repayments, though this should be a last resort due to the long-term impact on retirement savings.

‍

Step 7: Communicate and stay proactive

Throughout the process, maintain open communication with your mortgage broker or lender and stay proactive in seeking solutions. Regular updates and timely actions demonstrate your willingness to resolve the issue and can lead to better outcomes.

‍

Facing financial hardship can be overwhelming, but there are steps you can take to regain control of your mortgage repayments and protect your home. By contacting your lender, exploring available options, and seeking professional advice, you can navigate these challenges and work toward financial stability. Remember, you’re not alone, and support is available to help you through this difficult time.

Disclaimer
Prepared by Beck McLean Finance Pty Ltd ABN 80 632 809 833. This information does not take your personal objectives, circumstances or needs into account. Always read the disclosure documents for products and services before deciding on a product or service, and consider seeking independent legal, financial, taxation or other advice for your unique circumstances.
continue reading

Found that helpful?
There's more just like that.

Inheriting a property with a mortgage

Inheriting a property can be a significant event, both emotionally and financially. While many people imagine receiving a home free and clear, in reality, some properties come with an existing mortgage. If you find yourself in this situation, it's important to understand your options and responsibilities.

The ultimate guide to paying off your home loan

Paying off a home loan is a significant financial milestone and a key step toward financial freedom. For many Australians, navigating the complexities of mortgage repayments, interest rates, and financial planning can feel like a daunting task. However, with the right strategies and a clear plan, you can reduce your repayment timeline, save on interest, and take full ownership of your home sooner than you might think. This ultimate guide will provide practical tips, insights, and tools to help you tackle your home loan effectively and achieve your financial goals.

The ultimate guide to buying your first home in Australia

Buying your first home is a significant milestone, but it can also be a daunting and overwhelming experience. From understanding market trends to securing financing, the process requires careful planning and informed decision-making. In this comprehensive guide, we'll walk you through every step of the home-buying journey, offering practical tips, expert insights, and strategies to help you navigate the real estate landscape with confidence. Whether you’re dreaming of a cosy apartment in the city or a spacious home in the suburbs, this guide is designed to equip you with the knowledge you need to make informed choices and avoid common pitfalls.