How to avoid defaulting on your loan

If you are finding that you are struggling to repay your mortgage, don’t delay – get help immediately. The sooner you get help, the more options you will have.

Renegotiate your loan

If you can afford it, keep making payments, even if they're smaller. This will help keep the cost of your mortgage down. 

All lenders have hardship teams ready to help customers in tough times. You may be able change the terms of your loan, or temporarily pause or reduce your repayments. This is called a hardship variation.

Many lenders will negotiate short-term variations to repayment schedules, as long as there is a plan to get back on track, and there are circumstances in which lenders are obligated to agree to such arrangements.

It is important, however, not to agree to payment terms that cannot be met. Late payments and loan defaults leave marks on a credit history that can complicate any effort to refinance or secure a loan in the future.

Once you has defaulted on a loan by failing to make repayments as agreed, you can be sent a default notice, which gives you 30 days to catch up on the repayments that are in arrears, as well as continuing to make any repayments that are due in the 30-day period.

A finance broker may be able to assist you to pinpoint the source of the problem, as well as identify savings that may be available by refinancing to a lower-rate or lower-fee loan. Contact your broker to talk through your options.

Consider selling

One option is to live somewhere else and rent out your home until you can afford the repayments again.

If your circumstances are unlikely to improve, you may be better off selling your property.

It's better to sell your home yourself than have a lender take possession and sell it, as you're likely to get a better price and avoid paying any legal costs passed on by the lender.

If you do nothing, your lender can take action to repossess your home.

Thirty days after a default notice is issued, the lender can take vacant possession of a property that is not occupied, or seek a court order for possession of a property that is occupied.

If you are struggling to make your mortgage repayments, a Mortgage and Finance Association of Australia (MFAA) accredited finance broker may be able to help you negotiate with your lender.