If your bank has contacted you for not making home or investment repayments, you should talk to them.
You’re not alone if you’re struggling to keep on top of your finances.
Your bank is ready to listen and consider possible solutions that are right for you.
It’s important to be open and realistic when talking about your financial position.
The sooner you get in touch, the sooner you can start to find help.
What happens if I can’t pay my mortgage?
Don’t tough it out on your own, stay in touch with your bank.
There are several steps in this process and your bank will try to help you find a solution that’s right for you.
You may receive a default notice
Depending on the type of arrangement you have, your bank may send you a default notice if you’re behind in your payments. A default notice is a letter from your bank warning you that your mortgage account is in default because you’re behind with your payments.
You should read your default notice carefully, as it will tell you what the bank wants you to do, how long you have to do it, and other information about your position.
If you’re issued with a default notice, you’ll still have a limited period of time to come to an arrangement with your bank about your mortgage payments. You can still ask the bank for help at this stage. However, if you don’t come to an arrangement with your bank, they may start court action.
You may receive a Statement of Claim
It’s essential to stay in touch with your bank. Your bank will always look for ways to help you stay in your home or find another solution that works.
If they can’t do that, and you’ve been unable to meet the conditions of the default notice, your bank may lodge a legal document called a Statement of Claim.
A Statement of Claim is an application made to the court that sets out how much your bank claims you owe them and why they are making the claim.
You should seek legal advice as soon as possible if you receive a Statement of Claim and definitely within four weeks of receiving this document. If you do nothing, the court may enter a judgment against you, and you may lose the opportunity to lodge a defence if you have one. The bank might move to sell your home.
Legal costs relating to the Statement of Claim will be added to your loan balance. The sooner you contact your bank the better, as this will help keep down the legal costs added to your loan.
You can still talk to your bank and try to come to an arrangement about the loan even after receiving a Statement of Claim.
You can also seek help from a free and independent financial counsellor on 1800 007 007 or community lawyer. They may also assist you in lodging a complaint with AFCA if the bank hasn’t tried to help you.
Possession or sale
Sometimes it may be in your best interests to sell your property, especially if you can’t make repayments and are losing any equity you had in the property.
If you reach this point, it’s reasonable to ask your bank for sufficient time for you to sell the property. A local real estate agent can usually provide an estimate of how much time you’ll need.
It’s important to understand that delaying decisions about selling your home may increase your costs. Your property may have reduced in value compared to selling earlier, which may result in a larger financial loss for you.
In some circumstances, your bank may determine that selling the property is the only remaining option. The bank can then apply to the court to get an order to sell your property.
Could I be forced to sell further assets?
If money is still owing on your loan after your home is sold, this is called a ‘shortfall debt.’
If the sale price doesn’t cover the full amount, then the bank is entitled to take legal action to recover the outstanding balance. This can include making a claim to sell your other assets.
If there is a shortfall debt, you should seek legal advice and talk to your bank for help and support about how to repay it. In some circumstances, the bank may sell the shortfall debt to a debt collector. Debt collectors also have legal obligations to consider any hardship request you make in relation to paying this debt off.
If you didn’t have a large deposit when you purchased the property, your bank may also have taken out a special form of insurance that protects the bank in case there is a shortfall debt. This insurance is called Lenders Mortgage Insurance (LMI).
If the insurer pays the shortfall debt, you may then owe the insurance company the money to repay the shortfall debt. These companies would also work with you to provide help and support in paying the debt off.
What does this mean if you have a guarantor for your loan?
If you have a guarantor for your loan and you default you may be required to sell the property to pay back the loan. If you are unable to pay back the loan, and the sale price does not pay back the full mortgage amount, the bank may be able to enforce the guarantee and recover the difference from the guarantor.
If your loan is subject to a guarantee, your bank will notify your guarantor about your deteriorating financial position and provide them, within 14 days:
- A written notice if you have advised your bank that you are experiencing financial difficulty which has resulted in a change to the loan
- A copy of any formal demand or default notice that the bank gives you
- A written notice if you are in continuing default for more than two months after the issuance of the demand or default notice.
It’s a good idea that you and your guarantor seek separate legal advice upon receipt of any notice or formal demand for payment to a guarantor. Guarantors can also contact the bank if they are experiencing financial difficulty.
What if I can’t afford a lawyer?
Help is available.
Legal Aid is a government service in each state that provides legal services for free.
Community Legal Centres also provide legal services to people living in their local area. They usually help people who cannot afford a private solicitor and/or are unable to access Legal Aid NSW.
If you have limited funds to pay for a lawyer, the Law Society in your state can give you the names of lawyers who might be able to help with your case. The lawyer will need to explain how much their services are likely to cost or they may take your case ‘pro bono,’ where they are able to waive their fees.
Steer away from companies offering to ‘save’ your home or negotiate reduced repayments. These companies charge high upfront and ongoing fees and could leave you worse off. Speak to a free, independent and confidential financial counsellor instead.
Will this affect my credit rating?
If you are in default on your home loan this will affect your credit rating. The longer your payment is past due, the greater the negative impact it will have. If your bank takes legal action against you, this can further impact your credit rating. A poor credit rating can affect your ability to receive finance in the future. Your bank will tell you if they make a report about a default to a credit reporting body.
If your bank has approved a financial hardship arrangement, they are not usually allowed to report overdue payments to credit reporting bodies.
Avoid companies offering to repair your credit rating. The Moneysmart website explains what you can fix and how to do it for free.
Take care of yourself and seek help
Contact the National Debt Helpline on 1800 007 007 and speak with a financial counsellor. Financial counsellors are qualified professionals who provide free, independent, and confidential information and advice to people in financial difficulty.
Charities and community organisations can provide urgent help with food, housing and bills as well as emotional support.
You could also contact Beyond Blue on 1800 512 348 who offer wellbeing and mental health support service.
Moneysmart is another useful resource to help you.
What if you’re not happy with your bank’s response?
If you’re not happy with your bank’s response, you can make a complaint. You can find more information here.
In many cases, the complaint will be resolved internally between you and your bank with no further action required.
However, if your bank still doesn’t resolve the complaint to your satisfaction, you can take your complaint to the Australian Financial Complaints Authority (AFCA).
AFCA is an independent complaints scheme that is free for consumers. It provides an accessible way of resolving disputes, without having to go to court. The decision of the AFCA is binding on the bank.
You should only go to the AFCA after you have tried to resolve things with your bank, as AFCA will not deal with your complaint unless you have first given the bank the chance to help you.
If you want some support in making a complaint, a financial counsellor may be able to assist you. Call the National Debt Helpline to speak with a financial counsellor 1800 007 007.