Bad Credit Due To Death In The Family

personOtto Dargan access_timeMarch 28, 2019

An unexpected death in the family comes with considerable emotional distress and no one is fully-equipped to deal with it.

Unfortunately, losing a partner that contributes to the household income can also result in financial difficulty, especially if there are children to take care of.

Grief alone can also affect your ability to carry out normal work hours and earn a regular income, resulting in you missing payments on bills and facilities like your home loan.

If a death in the family caused you to accrue bad credit, are there lenders that can consider your situation so you can avoid losing your home?

Case study: Losing your partner

When in an unfortunate rock climbing accident, Liz lost her partner and her life had completely flipped upside down.

Mark worked as a rock climbing instructor earning roughly $20 per hour ($42,000 p.a.) and Liz earned an annual income of $55,000 as an office administrator.

They had a beautiful 2-bedroom suburban house, a car loan and some credit card debt just like many other young couples. Most of their wealth was tied up in their home equity.

After taking care of expensive funeral proceedings to the tune of $10,000, Liz was financially spread very thin.

In total, Liz was left with a credit card debt of $11,000, a car loan with $20,000 still owing, and a mortgage balance of $238,000.

She struggled to manage the repayments on her sole income and was behind on her credit card repayments by over 60 days when the default was listed on her credit file, causing her Equifax score to fall from around 600 to 400.

To manage her payments, Liz felt her only option was to consolidate her debts into her mortgage.

However, with her poor credit, she was finding it tough to consolidate her debts even though she had enough equity in the house to do so.

How Liz presented a strong case

Some lenders can assess applications on a case-by-case basis, instead of declining your application outright due to a low credit score.

They will listen to your side of the story and try and understand what caused you to miss your repayments.

When it comes to a death in the family, particularly when someone loses a co-income earner, some lenders apply more compassion than others.

If you previously had a good repayment history, this evidence will go a long way in your ability to refinance your home loan and consolidate your debt in order to put you in a better financial position.

Liz was honest and listed her missed payments

For Liz, the first step was to speak with a specialist mortgage broker about her situation.

The default would remain on her credit file for 2 years but Liz still needed to either make the payment or ask her credit provider to waive the payment.

An experienced broker can help borrowers do this as they progress with your debt consolidation home loan.

The key is to be open about your outstanding credit facilities and where you may have missed payments without necessarily incurring a default.

For example, Liz was also 35 days late on a mobile phone bill which would have been recorded on her repayment history information under new positive credit reporting rules.

Although she had since paid the late bill, it was important for her broker to know this so he knew which lender to apply with.

There can be a world of difference in the lenders you can qualify with depending on whether you have a paid or an unpaid default.

Why debt consolidation can be a viable solution

For borrowers who lose a loved one, trying to manage payments on multiple debts and credit accounts can be challenging.

In addition, for credit cards and personal loans, you’re paying a much higher interest rates than a car loan.

By consolidating debt, Liz was able to streamline her debt payments along with her normal mortgage repayment at the same rate as her home loan.

Effectively, the lender bought her existing debt and added it to her home loan.

What is the next step for Liz?

Liz was able to get back on her feet by downsizing, using the equity in her home as a deposit.

She was able to achieve this with a simultaneous settlement and by working closely with a mortgage broker to make the transition as smooth as possible.

The lender would use the new property as security as opposed to her old home.

Liz was able to purchase a new apartment unit that was much closer to her job, and used the sales proceeds to build a savings buffer and to take some time off to travel during her time of grief.

Once the default listing falls off her credit file, she will be able to refinance her home loan with a major lender at a much sharper rate.

Losing a loved one is never easy but the right home loan solution can help you ride the wave of financial uncertainty until you get back on your feet.

Call us on 1300 889 743 or fill in our online enquiry form to discover how we have helped many borrowers who have accrued bad credit listing due to a death in the family.

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