If you’ve missed your loan repayment make sure that the first thing you do is “Don’t panic.” Just because you’ve missed your repayment, it isn’t the end of the world.
Once you’ve gotten over the initial panic moment and exclaimed “oh crap, i’ve missed a payment”, the next thing to do is to assess the reason why the payment has been missed. This is because your lender will want to know why it was missed and how you’ll make it up.
Borrowers sometimes struggle to meet their mortgage repayments. The list of possible reasons is long, but some common ones include job loss, illness/injury and domestic violence.
There’s a misconception out there that if you miss a single mortgage payment, your lender will immediately seize your home and toss you out on the street.
The reality, though, is very, very different. Lenders have legal processes they must follow before they can foreclose on a mortgage. Also, lenders try to avoid foreclosing, for several reasons.
Reasons lenders avoid foreclosing
First, lenders are staffed by good, honest people who don’t like seeing other good, honest people get in trouble.
Second, lenders make their money from, well, lending money. So it’s in their interests to try to see the mortgage through to its conclusion, not to end it early.
Third, taking someone’s home and selling it off is a costly, time-consuming process, so it’s not something lenders want to do unless they have no choice. A lender is in the business of being a lender, not a landlord.
Check your loan contract
Some variable rate mortgage loans allow you to miss some repayments provided you have previously made additional payments or payments in excess of your regular minimum principal repayment.
However, it’s important to note that not all lenders will allow for this to happen.
Assess why you missed the repayment
There’s usually a reason why a scheduled loan repayment was missed and it’s important to find that reason so you can address it. If you are fully aware of why it’s happened then it’s going to be up to you to try to fix it.
Some of the most common reasons for a missed loan repayment (especially for a home loan) is because you didn’t have enough money in the account that the lender is going to take the money from (the direct debit account).
Not sure what a direct debit is? Check out how you can make loan repayments?
Other reasons that could occur include some sort of banking error or for an incorrect bank account. An incorrect bank account can happen when you change banks or accounts, but forget to tell your lender about it.
Possible ways to improve your financial position
If you’re struggling to make your mortgage repayments, it might also be helpful to see if there are ways you can increase your income and reduce your expenses.
To increase your income, it might be possible to:
- Claim on unemployment, accident or sickness insurance.
- Rent out a spare room in your home.
- Sell a second car.
- Get a second job.
- Take extra shifts at work.
To reduce your expenses, it might be possible to ask for ‘repayment holidays’ on your:
- Credit card debt.
- Utility bills.
- Hospital bills.
- School fees.
Ring your lender
Being proactive about missing a repayment goes a long way to show the lender that your not trying to hide. Trying to hide can be a clear sign that you can’t actually afford your loan repayment and are trying to avoid the issue.
Once you’ve made contact with your lender, explain the situation and they will be able to let you know what to do get back on track.
Getting into trouble and experiencing hardship?
This is something that can occur to all of us at some stage in our lives. Are you struggling to pay your home loan right now?
If you’re experiencing hardship, you have some rights by law to help you protect your home. Every lender will have a set of procedures to follow if you are having troubles affording your home loan and it’s important to follow these steps and get on the front foot.
As a general rule, lenders would rather work with borrowers to solve their problems than foreclose on them.
Don’t be embarrassed, scared or shy about it. Just make the phone call and get onto it. It could save you a lot of stress later on if the lender tries to sell your house because you’ve been avoiding them!
The sooner you tell your lender about your financial problem, the better. This is known as a ‘hardship notice’. Ideally, you should issue your hardship notice before you miss any mortgage repayments.
It’s important to be completely upfront with your lender. That means explaining:
- The extent of your financial problem,
- Why you’re experiencing this problem,
- How you might be able to solve the problem.
Your lender then has a legal obligation to assess your hardship notice and tell you either:
- That it’s willing to change your repayment terms – for example by temporarily stopping or temporarily reducing your repayments.
- That it’s not willing to change your repayment terms – and explain why.
If you’re in trouble, it’s also a good idea to ring the relevant financial services ombudsman and if needed engage the services of legal aid or other free legal counsel who can help you out with the process.
Free financial and legal advice
You might be experiencing enormous stress right now. If that’s the case, you might benefit from seeking free professional help.
You can call the National Debt Helpline on 1800 007 007, from 9:30am to 4:30pm, Monday to Friday. The NDH offers free financial counselling that might help you get back on track.
You might also need legal advice. Community legal centres offer free legal assistance, particularly for Australians who are disadvantaged and have special needs.
ASIC’s free MoneySmart website has a great resource to help if you find yourself in need of financial counselling. You can read more about that here.