Do Mortgage Calculators Have Benefits?
June 9, 2015

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Is Your Home Loan In Arrears?

These are the main causes of mortgage related arrears and financial difficulty

There are many reasons people find themselves with mortgage arrears or default. There are a number of reasons noted below that increase the risk of finding yourself in arrears with  your home loan, plus there are other factors that increase the incidence of mortgage default such as capacity to pay (diminishing an ability to meet commitments such as with gambling issues) along with loan type, interest rate and other factors.

  • Mental incapacity or illness by way of depression, or other illness.
  • Physical incapacity
  • Gambling
  • Loss of a job
  • Sickness such as cancer or any illness requiring hospitalisation.
  • Economic changes affecting work and hence income.

Loan factors that affect arrears:

Studies by the RBA (Reserve Bank of Australia) have highlighted contributing factors to home loans going into arrears, and also default. There was found to be contributing factors noted below:

  • Probability of entering arrears increases with loan ratios, especially noting higher loan ratios >90%
  • Low doc loans are more likely to enter arrears
  • If a loan has previously been in arrears there is a higher chance of arrears in the future.
  • Incidence of arrears increases with interest rate.
  • Higher debt servicing ratios ie higher debt payments to income ratio increases incidence of arrears. Higher incidence of mortgage arrears when there is a a negative equity position ie your home loan value exceeds your property value.

The factors above are important to understand as they assist in analysing the background reasons for home loan arrears. On its own the reasons are simply nice facts, however when included in the mortgage arrears assessment provides an effective and complete loan solution.