What happens if you miss a mortgage payment

Miss a mortgage payment and the clock starts ticking. Here's how quickly things can escalate, and what you can do to avoid losing your home.

It's the worst-case scenario: you're unable to continue making your mortgage repayments so your lender sells your home to cover the outstanding debt.

Fortunately, the vast majority of homeowners won't ever find themselves in this situation, but with interest rates expected to tick up and rising inflation putting pressure on everyday expenses, it might become a reality for more people.

Nearly 1.5 million mortgage holders were at risk of mortgage stress in the three months to April, Roy Morgan research shows - a figure which is likely to rise if rates keep heading north.

So what actually happens if you fall behind on your home loan? Here's how the process can escalate, and what you can do early to avoid losing your home.

Can going into negative equity put your home at risk?

Owing a bank more than your property is worth (negative equity) isn't ideal - but it's a situation more owners could find themselves in if prices in some parts of the country drop.

Commonwealth Bank's most recent forecast, for one, suggests that home values in Sydney (-6%) and Melbourne (-7%) will fall over the remainder of 2026.

"A buyer who purchased with a 5% deposit at the start of this year has very little buffer against falling property prices," says Sally Tindall, data insights director at Canstar.

"If CBA's forecasts play out, some recent buyers in Melbourne could owe the bank more than their home is worth by the end of the year, despite making their mortgage repayments on time."

The major downside of negative equity is that if you're forced to sell, you'll need to cover any shortfall between your loan and the sale price.

"Negative equity isn't necessarily a crisis if you plan to stay put and keep making repayments, but it can become a major problem if you're forced to sell or want to refinance," Tindall explains.

"If you do find yourself in this position, don't panic. Instead, put your head down and keep your mortgage repayments up."

What should you do if you miss a mortgage payment?

While missing a mortgage repayment isn't recommended, it's not the end of the world.

Plenty of people do it by mistake, though depending on how long it takes to fix it, you may be charged a late payment fee and end up with the missed payment on your credit report.

If you miss a payment because you don't have the money to cover it, lenders recommend contacting them as soon as possible and being upfront about your situation.

There are likely options available says Tom Abourizk, a senior policy officer at the Consumer Action Law Centre, including financial hardship support.

"Don't be afraid to ask for hardship assistance from your bank.

"A long-term deferral of a payment or a waiver of one month's payment might make a big difference, and it's probably in the bank's interest to strongly consider that at the very least."

When does a missed payment become a default?

If you can't rectify one or more missed payments, that's when the formal default process may begin.

"The first step in terms of the legal process is that a default notice will be issued," Abourizk explains.

"Default notices have to quite clearly set out that you're in default of your home loan, how you can fix it, what can happen if you fail to fix it and also provide a timeline for how long you have to fix it.

"I believe the standard is normally 30 days that they must provide at a minimum."

At this point, Abourizk recommends that anyone who receives a default notice considers lodging a dispute with the Australian Financial Complaints Authority (AFCA).

Beyond being able to raise any relevant concerns, repossession (they next potential step) can't go ahead until AFCA's assessed the dispute.

"An ombudsman would go through a process of exploring the options between them [the homeowner] and the bank to see if there is a way for them to retain their house, or at the very least, double-check that the bank is doing everything legally and reasonably."

How does the property repossession process work?

Failing an AFCA resolution or a remedy for the default, that's when a lender can begin the process of repossessing the property.

"To start repossession proceedings, banks generally need to go to court, so that would require formal written notice," Abourizk says.

"The person who receives that notice then has ten days to file an appearance, and they then have 30 days to file a defense if they want to do that."

If the court allows the repossession to go ahead, the lender is then likely to go to the sheriff.

"The sheriff would normally go through a two-step process where they notify the person that they have received the writ and will give them a date that they need to vacate by."

What can you do if you're under mortgage stress?

Repossession is a worst-case scenario. There are actions that homeowners - including those feeling the strain of rising mortgage repayments - can take long before that happens though.

Deb Shroot, a financial counsellor and industry liaison at Financial Counselling Australia, says that the first step for homeowners should be assessing their financial position.

"Work out how much you can afford and the maximum you can afford if rates do go up. Knowing what that amount is can be really useful so that you can quantify and track how you are, versus what you need to pay.

"You could also start either paying extra or putting any excess aside so that you do have a bit of a buffer if things get a bit tight.

"And if your plan includes refinancing, don't wait until you are unable to make your payments before looking at doing it."

Should you prioritise your mortgage over other debts?

Though mortgage repayments may be the largest cost for homeowners, Shroot also reinforces the point that other property-related expenses shouldn't be neglected.

"It's not just your mortgage that's really important, but also your strata and rate payments.

"Strata and rates are bound by either by-laws or legislation, so if you fall behind on these there's not the same flexibility of hardship that's available with commercial loans."

A home loan isn't going to be the only debt some households are paying off either, so how should a mortgage be prioritised?

"It depends on the individual, because everyone's finance ecosystems and value systems are different," Shroot says.

"Housing is a need, however, owning your house is not the only option.

"For example, someone might value continuing to send their child to a private school, so they might sell up and rent, whereas someone else would put their kids in a public school."

How can Australians access financial help?

One bright spot for anyone struggling with mortgage stress is that support is available. That includes hardship assistance from a lender or support from a financial counsellor.

"The options are going to depend on a number of factors, including how much equity you have in your home, how big your repayments are, whether you've accessed hardship before and whether you have other debts.

"So, there's really no one-size-fits-all type of solution," Shroot says.

That's why Shroot recommends reaching out to a financial counsellor who can provide advice which is catered to an individuals' situation, values and priorities.

"Financial counsellors can provide free, independent and confidential advice to help you work through the best options and the next steps forwards for your situation.

"There might also be flow-on consequences from someone's decisions, so we'll be able to discuss the consequences of choosing to pay your mortgage over your rates, or the other way around, and the pros and cons of doing that."

To speak to a financial counsellor you can call the National Debt Helpline on 1800 007 007, or you can find a counsellor in your local area or to fit your specific needs by visiting the National Debt Helpline's find a financial counsellor portal.

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