As interest rates continue to rise and lenders raise their rates accordingly, some Australians are now facing unexpected pressures when it comes to being able to repay their home loans.
According to recent data from Digital Finance Analytics, Australians are suffering from financial stress in greater numbers than at any time in the past 20 years. In fact, more than 1.5 million households across the country are currently in some form of home loan stress.
So if you’re one of the unlucky ones struggling to keep up with your home loan repayments, here are a few things you can do right now.
1. Critically examine your budget
As a first step, it is crucial to take a closer look at your current budget and your overall financial situation. This includes reviewing your income, expenses, debt you manage, and savings and investments.
Try to be critical about where your money goes and look for opportunities to reduce your overall spending. For example, if you subscribe to a handful of streaming services, it might be time to cut back on a few.
2. Contact your lender as soon as possible
Instead of waiting until it’s too late, it’s a good idea to contact your lender as soon as possible about your financial difficulties.
By doing so, your lender can help you find a tailor-made solution right away that suits your personal situation.
Lenders also tend to be much more understanding if you are open and honest when contacting them. Concretely, you will have to explain how and why you are not able to make the repayments of your mortgage.
3. Research your difficulty options
Once you’ve contacted your lender and told them you’re having financial difficulty, they’ll be able to explain your options and can offer you an alternative if you’re struggling.
A hardship variation is a change in the terms of a home loan to make the loan easier and more affordable to manage.
The variation could give you more time to pay by extending the term of your loan, temporarily pausing or reducing payments.
Along with a variation of hardship, you can also consider accessing some or all of your available drawdown balance, or possibly turning your repayments into interest only for a period of time.
4. Debt consolidation by refinancing your mortgage
If you are drowning in debt, a good option is to consolidate by refinancing your home loan.
This can be done by reviewing your existing debts, including your home loan, car, credit cards, personal loans, and phone bills, then consolidating them into one loan.
Essentially, this allows you to have one debt with one interest rate (variable, fixed, or fractional), instead of multiple debts piling up.
Not only does this make it easier for you to deal with repayments, but it can help simplify your finances and save you valuable time.
5. Consider selling your property
If your financial situation is difficult and does not seem likely to improve in the near future, you may also consider selling your property.
Although it is a difficult decision to make, it is better to sell your property yourself than to let a lender take possession and sell it.
Before you can sell, you will need to get your mortgage discharged. The process can tend to take between two and three weeks. This usually involves filling out a mortgage release form and giving it to your lender.
Once the form is submitted, your lender will contact your attorney to settle the settlement.
With the current market and economy putting great pressure on Australians – especially those still trying to recover from the trauma of the global pandemic and subsequent lockdowns – now is the time to consider your options and plan accordingly to help ensure a healthy financial future.
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