Cant Afford The Mortgage

Consider your options before you default

In financial trouble and can't afford your mortgage repayments? Thankfully there are steps you can take to keep hold of your home and avoid the unpleasant mortgagee or lender sale.

Forced property sales

Recent figures released by the Supreme Court of NSW show that lodged mortgage defaults in 2006 were up 10 percent on the previous year. Victorian Supreme Court figures reveal a similar scenario, up by over 8 percent on 2005 figures. Past statistics have been more alarming - like a 59 percent increase in NSW between 2004 and 2005, and a doubling of the figure in Victoria since 2003 - but many experts believe Australia's real default figures are far greater than those reported.

The chief executive of debt collection firm Prushka, Roger Mendelson, told The Australian in May that three quarters of all forced sales by banks and non-bank lenders are not recorded in court figures because they are done with the consent of the home owners. "By far the most popular way for lenders is to sell the property with the consent of the borrower to avoid advertising the property as a forced sale," Mr Mendelson said.

Act quickly

If one month passes, or less if specified in your mortgage, you are technically in default. Your lender will send a letter of demand giving you between seven days and one month to bring your mortgage up to date.

If you cannot meet your mortgage repayments, the first step is to talk to your bank before you even fall into arrears. It is not in the lender's interest to see you default and ignoring the bank's letters and phone calls will only delay a situation you must eventually address. Be upfront and honest about your situation as there are options. These include lowering your repayments by negotiating an interest only loan for a period, drawing on any existing equity, loan refinancing or taking financial counselling. The longer you leave it, the further you will fall into arrears which could affect your credit rating in the long term.

Excess loan repayments

Any extra loan amounts you have paid in the past could serve you well in this instance. These could act as a buffer during times of financial stress.

Superannuation

Tapping into your super should be a last resort, but it is possible to access super for legitimate financial hardship and compassionate reasons.

Get advice

Melbourne's Consumer Action Law Centre (T: 1300 55 81 81) and Sydney's Consumer Credit Legal Centre (1800 808 488) can give you financial advice on how to deal with a default situation.

Avoiding a mortgagee sale

Mortgagee sales are costly in legal terms and attract bargain hunters who may not be willing to pay your home's true market value. In this instance it may be a better idea to opt for a voluntary sale and put your own home on the market, before the lender starts taking legal steps to sell it for you. That way it is not advertised as a mortgagee sale, you choose the agent and you have more control over the sale price outcome.

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