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If you have ever experienced stress due to making home loan payments at a time when household cashflow is not bringing you your usual income, you will know how difficult this time can be. Whether your circumstances relate to loss of employment, relationship breakdown or unexpected urgent expenses, there are some measures one can take to minimise the impact of such circumstances.
Planning ahead for trouble
If you have advance warning that you may not be able to meet your financial commitments and you know that you may be short on funds to make your repayments, you may be able to secure an additional loan or set up a redraw facility on your account that will give you the cash on hand to live your life and make the needed payments. In this way, your lender will not be aware that you are experiencing hardship, you will be able to continue to make your repayments as usual and you can catch up on payments at a later stage.
Resist the urge to use credit cards
Using short term debt such as a credit card to repay a long term purchase like a home is a dangerous and slippery slope towards financial ruin as the interest free periods are usually only 55 days which may not be enough time to get your feet back on the ground. If you are already using your credit card and not paying the balance off each month, you might want to think about finding a new credit card that will allow you to transfer the balance of your other card(s) to the new card and take advantage of a long interest-free period. Try not to spend any more money on the credit cards or cut them up to resist the urge.
Wind back unnecessary spending
It may go without saying but we grow accustomed to the usual daily expenses that add up to a lot in the long term. Consider pausing unnecessary expenses like eating out, luxury grocery items and booking that holiday until your finances have been straightened out.
Refinance your home loan
If your pay cheques are still looking pretty good, you may be eligible to refinance your loan with a different lender and make a saving on your annual interest rate or bank fees. If financial hardship is likely to occur for a short term, you may be eligible to borrow an additional sum that you could use to tide you through a difficult period. Even if you remain with your current lender, call their customer service department to let them know you are about to refinance with a different lender and ask them to match or beat the rates.
Shop around on your regular expenses
You might be surprised how much you can save if you shop around or negotiate with business you use such as insurance companies, accountancy or utility companies such as electricity, gas, internet and mobile phone service providers. This could add up to thousands of dollars by the end of the year which may just be enough to save you from hardship.
Ask your lender for additional time to pay
If you still cannot manage after trying all other avenues, you may have to come clean with your creditor and tell them you will require additional time to make your payments. Banks will likely not foreclose on your debt immediately and will probably give you some extra time to pay. Be aware that mortgage defaults are recorded and may affect your future capability to obtain finance, even via different lenders as they may share this data.
Consider selling before things get too bad
If things are just too difficult to manage, it much better to have control of the sale of your property rather than have the bank sell your property as mortgagee in possession. Bankruptcy is a highly undesirable state to declare or have petitioned upon you as it may affect your ability to get credit, travel overseas, gain some types of employment or own a business. If the bank exercises its right to foreclose on you as mortgagee in possession, you will lose the power to make decisions around the sale of your asset. Banks have special powers under the terms of the loan agreement to evict you from your property and then sell for what ever price they can sell for. Whilst they will try to get a fair price, it is always more desirable to be in charge of the process. Be proactive and get an estate agent in early who may be able to connect you with a buyer and avoid the situation becoming worse.
For any real estate advice or information contact the author Simon Wendt on 0407 040706