The start of a new year can be the most difficult time to stay on top of financial commitments, but what happens when money strains begin to impact your mortgage?
Falling behind on loan repayments can have a devastating effect on a family.
It’s something that property analyst and Suburbanite principal Anna Porter has seen far too often in her previous work as a valuer for mortgagees in possession (properties that have been repossessed by the bank).
“I’ve gone in with the sheriff more times than I wish I had. You know, you see one pink room, one blue room and teddy bears left behind. Financial ruin, essentially,” Porter told Your Money Live.
While there are many reasons people fall behind on repayments, including failed businesses or poor investment choices, sadly Porter says the most common reason is family trauma.
“Someone gets cancer, someone loses their job because of health reasons, children get sick, mental health, things like that,” Porter says.
“Those things put a huge burden on the family and sometimes those mortgage repayments become too big to jump over.”
The situation can be incredibly stressful, but Porter says there are steps that can be taken to get control of the finances again.
Porter shared the following advice:
1. Speak to the bank
Many people don’t realise it, but there are a number of options that lenders must offer to people who are facing financial hardship.
Porter says one of the best solutions available is to have the bank place a temporary pause on your mortgage repayments.
Although it will ultimately add to the total loan, not having to meet payments for a few months can be a lifesaving buffer for anyone going through a rough patch.
Some lenders even have financial support programs for customers that are faced with extenuating circumstances, such as domestic violence.
2. Get your accountant involved
Speak to your accountant early in the process and often.
Porter says your accountant should be able look at your expenses, your income and your loan to help you to work out a cashflow crisis management plan.
“That’s what they’re there for. If you’ve got an accountant that just does your tax each year, get a better accountant,” she says.
3. Look at selling
Although it’s always the last option people want to take, Porter warns that selling a property is never something that should be undertaken at the last minute.
“What often happens is when people get into financial stress, they hide from it, they put their head in the sand and they leave it to the absolute last minute to try and sell,” says Porter.
But last minute selling can result in two scenarios.
Either a distressed sale, where a home must sell quickly because it’s about to be repossessed or a mortgagee in possession sale, where the lender has already repossessed the property.
Without the time for proper marketing, a quick sell is likely to undervalue the property, leaving a person far worse off.
Porter says you should speak to a number of local real estate agents as soon a possible to work out the value of the property and better consider your options.
She adds there’s no need to tell the agent that you’re in financial trouble, let them believe that you’re selling because you want to.
4. Speak to your broker
The best option may be to look at selling your home and buying a less expensive property instead.
If that’s the case, speak to a mortgage broker about keeping part of the loan facility open for a second, more affordable purchase.
This is important because if you’ve fallen behind on repayments, it may be harder to get a new loan from scratch.
“Talk to the broker earlier on about strategies that you can use to keep part of the loan open when you sell the house and substituting it with a more affordable loan. But you have to do the numbers,” Porter warns.
5. Consider renting out your property
If you live in the property, consider renting it out for 12 months as you get on top of your finances.
It may be possible to move in with other family members for a period of time or move into another rental property that’s more affordable.
“Let the tenant help you get back on top of the situation if it’s your own home, and do that earlier rather than later,” Porter says.
“I know it’s daunting. But having the sheriff take your property from you? That’s daunting.”
Watch the full discussion in the video above.