What can you do if you fall behind on your home loan?

Are you missing home loan payments? Has your mortgage become too expensive? What do you do when you miss home loan payments? This are questions asked by many homeowners facing financial difficulty and finding it expensive to meet their mortgage. This article explores some things that can be done if you fall behind on your home loan. While not an all-encompassing guide, it provides excellent, practical and proven ideas.

Credit: www.mortgagerescue.co.nz

 

People wonder what happens when you miss mortgage payments. Here are some of the things that may happen.

1. Your credit rating could be negatively impacted. This may make it harder to get loans, credit cards, finance, or other accounts in the future such as power or broadband/internet.
2. The lender may contact you and discuss a repayment programme.
3. The lender could issue a letter of demand, demanding you to make payment. They may demand payment by a specific date.
4. A Property Law Act notice (“PLA notice”) could be issued.
5. The lender may commence foreclosure and the mortgagee sale process and sell your home. This can help them recover the loan amount, interest and other costs.
6. You may incur other costs and consequences. Other recovery action could be taken, for example if there’s still an outstanding amount after selling your home.

The Citizens Advice Bureau has a helpful website explaining more about mortgage repayments not being met.

The issue of homeowners falling behind on mortgage repayments has been a serious concern. A recent report on RNZ indicated that the number of households behind on their mortgage repayments was up 26% (in 2023) on the same time last year in 2022.

Home loan challenges exist for many New Zealanders. There are other consequences that do not necessarily all appear in this article. Below are ideas for homeowners.

Discussing the situation with the lender

The sooner you take action, it may make it easier to solve your mortgage problems. Different sources suggest it is crucial to get in touch with the lender as soon as you realise you are having trouble (or will soon be having trouble) repaying your mortgage. Sources such as CAB suggest that long as you contact them as soon as possible, often lenders are willing to negotiate a payment plan to help you get through a challenging time.
CAB’s website also cites that someone may be able to use their KiwiSaver funds. Or discuss with the mortgage provider a hardship provision.

Make a budget

Making a budget and getting clarity on your finances may help you in some way with money problems and problems keeping up with repayments. You might notice that you’re spending too much on things that could be cut back, such as subscription TV like Netflix. Or expensive gym memberships. You may be able to redirect funds to areas more relevant like your home loan and meeting essential payments.

For help making a budget you could consider Sorted.org.nz ‘s budgeting tool or speaking to MoneyTalks (a free financial helpline service) who could put you in touch with a local financial capability mentor.

Restructure your mortgage and loans

Avenues can exist to restructure your mortgage and other loans to help make their repayments more manageable. Examples of this include debt consolidation or extending the loan term of the home loan.

Debt consolidation

Debt consolidation is the act of combining several loans or repayment arrangements into one is known as debt consolidation. It is a financial tactic intended to make managing debt simple and may result in a lower interest rate than otherwise. Individuals or companies can combine numerous high-interest loans, credit card balances, or other outstanding debts into a single, manageable monthly payment by consolidating their debts. This might result in lower interest rates, a longer repayment period.

Loan term extension

One potential way to make the cost of a mortgage more immediately manageable is to extend the term of the loan. The length of the loan allows for significantly lower monthly payments, which lessens the financial burden on homeowners. Smaller, easier to manage payments made over a longer period of time may increase cash flow and give budgeting more flexibility. Even though the total amount of interest paid over the longer term might likely be higher, the immediate advantages of better affordability and greater financial stability may outweigh this trade-off. Every situation is with its own nuances and consider discussing it with a suitably qualified financial professional.

Consider additional income

You may want to consider if you can increase your income. This might come from working another job, looking into government benefits or assistance, having a boarder or flatmate for a spare room, working overtime or other methods.

Work a second job

For instance, working a second job can be a practical way to earn extra money and contribute to the repayment of a mortgage. People can increase their monthly income by taking on additional. A person may want to also think about how it may affect their taxes, benefits, and possible personal relationships. However, a second job may provide a useful way to increase income and help the repayment of a mortgage.

Bring in a flatmate or boarder

When facing financial difficulties and finding it difficult to make mortgage payments, having a flatmate or boarder can be a helpful solution. The additional income can give a much-needed boost to pay the mortgage costs by renting out a spare room or splitting living expenses.

Refinancing with a non-bank lender

Non-bank lenders can have advantages over bank style lenders when it comes to refinancing. They may offer greater accessibility, easier criteria, flexible loan terms, specialised solutions, and interesting loan solutions.

They can make refinancing options available to a wider range of borrowers by lowering the eligibility requirements. Non-bank lenders also provide different loan terms to satisfy particular borrower needs. Their expertise in niche areas allows for specialised refinancing solutions.

You may find that a bank may not be able to restructure your home loan, however a non-bank lender could.

We explain non-bank lenders in New Zealand in more detail on our website. They can help you find alternative solutions for your mortgage. Contact us to discuss potential options with a non-bank lender.

Dealing with future mortgage arrears

While the future can bring unexpected circumstances or changes, there are some steps that you can take to help reduce the likelihood of falling into mortgage arrears in the future. Examples can include the following

Regular budgeting and working with a financial capability mentor. As different changes happen in your life, such as job changes, having a new born, a family member becoming sick, or something else happening. Regular budget management can help you to gain greater visibility on finances.

You may also want to consider what can be done to raise income over a period of time. Your income might be okay now but could be problematic in a few years, say if the cost of living were to rise. You could consider opportunities such as seeking out a promotion or upskilling to get paid more.

Good management of expenses also helps. You could figure what steps you take to ensure your expenses focus on necessities rather than excessive discretionary spending. Are you able to cut back on expensive meals and entertainment and put such money in a savings fund for a rainy day?

You may also want to consider long term plans. For example, right now you may be fit and able to work a 50-60 hour week which is how you keep your mortgage afloat. In the future, you may not be able to work as much, and therefore maybe consider a more affordable property, downsizing and selling up.

Consider getting legal help

You may want to consider getting the help of a suitably qualified legal professional to see if they can help. They may be able to help in different ways. Examples include but are not limited to, them being able to guide on you on the legalities of the situation, your rights, obligations, and potentially work in to find a solution from a legal point of view. It’s also possible a legal professional may be able to help if they identify an issue.

Reach out for help

For help with refinancing and to understand your options, you can contact us at Mortgage Rescue to understand your options. Reach us on our contact page or call 021 158 3156 for friendly help.

ABOUT THE AUTHOR

Just Mortgages
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