Chapter 6: Making a workable repayment arrangement

When you are in mortgage stress there are two main things you have to do:

1. keep making repayments to your home loan (of an amount you can afford), and
2. negotiate an affordable and realistic repayment arrangement with your lender.

Making repayments

Your home loan repayments are your highest priority because:

• if you do not pay, the lender can take your home (after completing certain steps),
• it is a large debt so interest will accumulate fast, and
• it is easier to make repayment arrangements (or even arrangements where you do not make any repayments for some months) on smaller debts like credit cards.

It is better to pay an amount on a regular basis and try to pay more when you can than paying lump sums on an irregular basis. This is because with regular repayments the lender can see how much you can afford and that you will keep to a regular repayment amount.

If you have a number of different debts, talk to a free financial counsellor for independent advice on how best to manage each debt. See Chapter 14: Useful contacts.

Don’t forget to pay your strata levies – that is a high priority housing debt as well. Get legal advice early if you have any issues with strata debt, and do this urgently if you owe close to or over $10,000.

The problem with direct debits and mortgage stress

If there is not enough money in your savings account to cover the full repayment, the direct debit will be rejected (“dishonoured”) and you will not make any repayment at all. This will cause further financial hardship as you may be charged fees on your savings account and your home loan. If you cannot make the full loan repayment then you need to either:

• contact your lender and lower the direct debit to an amount you are sure you can afford, or
• cancel the direct debit and make repayments using another method e.g. BPAY, direct credit.

If your income is irregular, you can set up a direct debit for a regular lower amount and use another payment method to make extra payments when you can. Whatever you choose to do you need to do it as soon as possible. You have a right to cancel your direct debit by notifying the bank, credit union or building society where your savings are held.

Some lenders insist on repayments by direct debit only. If you are having trouble finding another way to pay your lender, get advice.

Negotiating a repayment arrangement

Your rights

The credit law gives you some important rights when you are in financial hardship:

1. You have a right to reduce or postpone your payments if you are in short-term hardship because of something outside your control (eg: you lost work or were sick). You can do this over the phone or in writing. Tell the lender that you are struggling with payments and you need help. Explain what has happened and what your plan is – for instance, you’ve lost your job and you need your payments postponed for 6 months while you look for another job, then you can go back to normal repayments (or you can offer to pay extra to catch up the arrears if you can afford it).
2. Within 21 days, the lender can ask you for more information, for example, payslips, medical certificate and/or a current statement of your financial position (showing your income/expenses). You must provide the requested information if it is relevant.
3. The lender must give you an answer to your hardship request within 21 days of your request or after you have provided any additional information requested. The lender’s response must be in writing if the agreed arrangement is over 90 days. Their response must tell you:
   1. whether the lender agrees to the change, and
   2. if the lender does not agree, they must tell you why they are refusing to agree and how to complain to the free complaint resolution scheme AFCA.
4. After you ask for hardship, the lender cannot go to court until they respond to you (under point 3 above) if this is your first hardship request in the last 4 months.
5. If the lender agrees to the suggested change and the repayment plan is over 90 days, the lender must put the details in writing to you within 30 days after the agreement is made.
6. If the lender does not agree to the change, your next step is to complain to the complaint resolution scheme, AFCA.
7. If you are unsuccessful with AFCA you still may have the option of going to court – but get legal advice first.

Working out what you want to ask for

Step 1

Before you do anything you need to work out what you want to offer as a repayment arrangement. The repayment you offer must be affordable. You must be able to make the repayment each month. Do not offer to make repayments you cannot afford.

There are several ways to work out what repayment you can afford:

1. Call a free financial counsellor for assistance on 1800 007 007,
2. Do a budget. For more information see the Moneysmart website.

You need to make sure you have income left for basic needs such as food and medicines.

Don’t forget you can also make hardship arrangements with your other creditors, like your credit card and energy providers.

If you cannot afford to make any repayments then you will need to ask for a period of time of making no repayments.

Step 2

You need a plan on how you will return to making the usual repayments.

If you are not going to be able to return to making the usual repayments to pay off the loan, then you need to consider selling your home. Hardship is only for short-term difficulties. See Chapter 8: Do I need to consider selling my home? for more information.

In many situations you may not know when you will be able to return to making the usual repayments, for example, if you are ill or looking for work. In these situations you need to estimate how long you will need and ask for further time, if required.

Calling the lender

When you call the lender, make sure you do the following:

1. Make a note of the phone conversation.
2. Ask to be transferred to the financial hardship team (if there is one).
3. Tell the lender you are in financial hardship and why (eg. you have lost work, or are sick).
4. Tell the lender what you can afford to pay per month.
5. State how long you need to make reduced repayments for. If you are unsure how long, you should ask for between 3 and 6 months with a review at the end of that time.
6. Ask how much your new repayments will be at the end of the variation. If you won’t be able to afford these new repayments, insist on extending the term of the loan instead, so the missed repayments can be added to the end of the loan and you can go back to making your normal repayments instead.
7. Ask that all legal action, default fees and default interest stop while the lender considers your request.
8. Ask that the lender not list a default on your credit report and ask the lender how they will report your repayment history while the arrangement is in place.
9. Ask the lender to send you the details of the agreement in writing. Put reminders in your calendar so you remember when payments will start or change.

Writing to the lender

If you are not comfortable calling the lender, you can write instead. A sample letter can be downloaded below. If you have tried calling the lender without success, you might want to try writing to the lender.

Completing a statement of financial position

The lender may ask you to complete a statement of financial position (which is a budget or money plan). You should agree to do this. You can get help from a free financial counsellor in completing this form. Tell your lender if you need time to see a financial counsellor.

It is important that your statement of financial position shows that your repayment request is fair and affordable. You need to show you can keep to the arrangement.

If your statement of financial position shows that you have more money available than you are offering in reduced repayments:

• Check that you have included all your essential expenses. If you have done so, then you need to consider offering more in repayments.
• If your statement of financial position includes expenses the lender may consider frivolous, or unnecessary, you need to ask yourself whether you can do without those things.

If you have checked your income and expenditure is correct, and there is nothing you can change to increase your income or lower your expenditure so you can go back to your normal repayments after your hardship ends, then you need to offer less and/or consider selling your home (see Chapter 8: Do I need to consider selling my home?).