What to do if you can't afford your home loan repayments
With the cash rate rising for the third time in as many months and lenders hiking their rates as a result, some Aussies are now facing unexpected pressures when it comes to being able to afford their home loan repayments.
According to recent data from Digital Finance Analytics, Australians are suffering from financial stress in greater numbers than at any point in the past 20 years. In fact, more than 1.5 million households across the country are currently under some form of home loan stress.
So, if you are 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 review your budget
As the first step, it is crucial to take a closer look at your current budget and overall financial situation. This includes reviewing your income, expenses, the debt you are managing and any savings and investments you have.
Try to be critical about where your money is going and look for opportunities to reduce your overall expenses. For example, if you have subscriptions to a handful of streaming services, it might be time to cut down on a few.
2. Contact your lender as soon as possible
Instead of waiting until it is too late, it is a good idea to contact your lender as soon as possible about your financial hardship.
By doing so, your lender will be able to help you right away to search for a tailored solution that will be appropriate to your personal situation.
Lenders also tend to be far more understanding if you are open and honest when reaching out. Specifically, you will need to explain how and why you are unable to make your home loan repayments.
3. Research your hardship options
Once you have contacted your lender and told them you are in financial hardship, they will be able to explain your options and may offer you a hardship variation.
A hardship variation is a change to the terms of a home loan in order to make the loan easier and more affordable to manage.
The variation could give you more time to pay by extending your loan period, temporarily pausing or reducing payments.
In addition to a hardship variation, you could also consider accessing some or all of your available redraw balance, or potentially switching your repayments to interest-only for a period of time.
4. Debt consolidation by refinancing your home loan
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, and then rolling them into a single loan.
Essentially, this allows you to have a single debt with a single interest rate (variable, fixed or split), instead of multiple mounting debts.
Not only does this allow you to meet repayments with more ease, but it can help to simplify your finances and save you precious time.
5. Consider selling your property
If your financial circumstances are dire and don't seem likely to turn around in the near future, you can also consider selling your property.
While this is a tough decision to make, it is better to sell your property yourself than have a lender take possession and sell it.
Before you can sell, you will be required to get your mortgage discharged. The process can tend to take between two and three weeks. This generally involves filling out a discharge of mortgage form and providing it to your lender.
After the form has been submitted, your lender will connect with your solicitor to sort out the settlement.
As the current market and economy are placing a lot of pressure on Aussies - especially those still trying to bounce back from the trauma caused by the global pandemic and consequential lockdowns - now is the time to consider your options and plan accordingly to help secure a healthy financial future.
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