Generally, people are behind on their mortgage repayments due to a fall in income or rise in expenses or both.
This could happen due to life circumstances such as illness, loss of employment, divorce or situations that are unexpected and certainly unplanned.
If you cannot make payments on your home loan, then the bank could repossess your home.
Is late payment the same as missed payment?
You should be aware that having a missed payment and failing to make your repayment on time are two very different situations:
|Point of difference||Missed payments||Late payments|
|Definition||A missed payment is a payment that you completely missed and never made up.||A late payment is one that you didn’t pay on time but did eventually make up the repayment.|
|How many days?||If you’ve missed payments for more than 60 days, it could be recorded as default||It can be between 14 days and 60 days|
|What is the impact on my credit score?||It will lower your credit score.||Several late repayments could be an indication of mortgage stress and lower your credit score. One late repayment, followed by timely repayments will not significantly affect your credit score.|
|How long will it stay on my credit file?||A default will stay on your credit file for up to 5 years||A late repayment will stay on your credit file for up to 2 years.
Even if you’ve made the minimum after the grace period, it will be recorded as late payment on your credit file.
With the implementation of positive credit reporting, you should always try to pay your repayments on time and be completely aware of the monthly payment date especially if the repayments are by direct debit.
Can I refinance my home loan?
Yes, you can refinance a home loan in arrears.
The refinance might be to a higher interest rate and once you have good repayment history (typically for 1 year), we will refinance to a major lender.
If you have defaults on your credit file, then we may refinance you to a cheaper specialist lender and then to a major lender once your credit history is clear.
It’s easier to refinance to a major lender if you can prove a perfect repayment history on your loan and you have clear credit.
Therefore, you’re only paying a higher interest rate for a short period of time.
If you have one or two late repayments by a few days, then we might be able to refinance to a major lender with a competitive interest right now.
Please call our mortgage brokers on 1300 889 743 or enquire online to find out how we can help!
How to refinance if you have arrears?
Apply as soon as you realize that you cannot keep up with your repayments. Specialist lenders will consider your situation.
Please note that refinancing mortgage in arrears will only be done if you stand to benefit from moving to a new lender.
Most of the time, lenders will have hardship options available to help you keep up with your repayments.
What is the arrears rate / default interest 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.
What are the pros and cons of refinancing mortgage in arrears?
|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?
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 until your bank takes action?
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.
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, we have access to a panel of specialist lenders who can help with your circumstances.
We know the right lenders who can approve a home loan or debt consolidation.
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.