Mortgage In Arrears: What It Means And How To Refinance

Falling behind on mortgage repayments can happen quickly when income falls or expenses rise, often because of illness, job loss, divorce, or other unexpected life events. Being in arrears means you’ve missed or delayed your home loan repayments, but it does not mean you’re out of options.

With the right support, many borrowers can recover through refinancing, negotiating with their lender, or working with a specialist lender to regain stability and move forward.

What Does “Mortgage in Arrears” Mean?

Mortgage arrears occur when you do not make your required home loan repayments on time, whether that means missing a payment altogether or making it after the due date.

If arrears continue, your lender may treat the loan as being in default, which can result in additional fees, higher interest rates, and, in some cases, legal action.

What Is The Difference Between A Late Payment And A Missed Payment?

It is also important to understand that a missed payment and a late payment are not the same. A missed payment is one that is not made at all and not later brought up to date, whereas a late payment is made after the due date but is eventually paid. This distinction matters because the impact on your credit file can be different.

With positive credit reporting now in place, it is important to make your repayments on time and stay aware of your monthly due date, especially if your loan repayments are set up by direct debit.

How Much Can I Borrow If I Am In Mortgage Arrears?

Your maximum Loan-to-Value Ratio (LVR) will depend on how severe your arrears are.

• 90% of the property value with specialist lenders if you have minor late payments.
• 80% of the property value for up to two missed payments.
• 75% of the property value if a lender is taking legal action. However, you must prove that you’re no longer in financial trouble.

Lenders will also assess:

• Your current income stability
• Whether the cause of arrears has been resolved
• Your recent repayment history

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Can I Refinance A Home Loan In Arrears?

Yes, it is often possible to refinance a home loan in arrears, particularly through specialist lenders. In some cases, this may mean moving to a loan with a higher interest rate initially. However, once you have established a strong repayment history, often for around 12 months, it may then be possible to refinance again to a major lender with a lower rate.

This means that, for many borrowers, a higher interest rate may only be a short-term step toward a more competitive loan. And if you have only one or two repayments that were paid a few days late, it may still be possible to refinance with a major lender straight away at a competitive interest rate.

To find out what options may be available in your situation, please call our mortgage brokers on 1300 889 743 or enquire online.

How To Refinance If You Have Arrears

To improve your chances of approval, it is important to take action early and present a strong case to the lender. The following steps may help:

• Act early. Apply for refinancing as soon as you realise your repayments are becoming unmanageable.
• Speak to a broker or specialist lender. These professionals understand arrears situations and are familiar with different lender policies.
• Demonstrate financial recovery. Show evidence of stable income and improved financial behaviour to reassure the lender that the arrears are unlikely to continue.
• Provide a clear explanation. Explain what caused the arrears and outline how the issue has now been resolved.
• Make sure the refinance will improve your position. Lenders are more likely to approve the application if the refinance clearly puts you in a better financial situation.

In some cases, your current lender may be able to offer hardship assistance or alternative repayment arrangements that are more suitable than refinancing.

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What Is A Default Interest Rate (Arrears Rate)?

If you’re behind with your payments then the lender will charge you a default or penalty interest rate. This is normally charged on the amount that’s overdue. However, in some cases, this will be charged on the entire loan amount.

This is why it’s extremely important that you make your repayments on time, you’ll avoid the risk of being charged any defaults on your loan.

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What Are the Pros And Cons Of Refinancing A Mortgage In Arrears?

Advantages	Disadvantages
You can switch to an interest-only loan to help you manage your cash flow	You could be charged a higher interest rate, which means your repayment will be higher. If you can’t manage repayments after refinancing, then you could fall into a debt spiral.
You save your home as it will not be repossessed by the bank.	If you’re borrowing over 80%, then you will have to pay LMI fees along with other fees that come with refinancing like valuation fees, application fees, settlement fees, etc.
You could refinance to consolidate your debts so your repayments are manageable.	A way to reduce repayments would be to extend your loan term, but you end up paying more interest over the life of your loan.
It opens the doors to negotiating the loan term with your lender. You could negotiate on repayment schedule, amount, etc.

What Actions Will Banks Take If I Am In Arrears?

The worst-case scenario is that the banks will evict you and repossess your home.

However, your bank or lender will take several steps before repossession happens:

• Your lender will contact you regarding the missed payments via email, phone call or letter.
• Then, you’ll receive a default notice informing you that you have up to 30 days to catch up with your missed repayments. During this time, you can talk to your lender about your repayment options and apply for financial hardship.
• If you still can’t make the repayments once the default period ends, then the eviction process begins.
• The lender will obtain a court order and you will receive a letter to move out.
• The bank then repossesses your home and might sell it to recover the loan amount.

How Long Does It Usually Take For A Bank To Take Action On Mortgage Arrears?

The banks will take action when they can see that there have been constant arrears on your home loan.

• High LVR over 80% – generally 2 missed payments.
• Low LVR under 80% – generally 3 or more missed payments. In this situation, the banks will tend to work with you rather than possess your home.

Some lenders tend to take action faster than others depending on their hardship policy. It’s important to talk to your lender and work with them rather than hide and to look for an exit strategy such as selling your home, refinancing or consolidating your debts.

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Do You Need Help To Refinance A Mortgage In Arrear?

If you’re behind on your home loan repayments and want to refinance, immediately consult a specialist lender or a mortgage broker.

At Home Loan Experts, our mortgage brokers are credit specialists and will thoroughly assess your situation to improve your chances of refinancing a home loan in arrears.

Please call us at 1300 889 743 or fill in our free assessment form.