Home Loan Arrears QA
Q: Can I refinance a mortgage with arrears?
A : Yes. You can refinance a mortgage that is in arrears.
However, there is a substantial amount of Australian Governmental Compliance to establish the benefits These can be both financial benefits to the owner, and any other benefit to you as a loan applicant. All of the underlying issues need to be identified before a simple answer can be given. This is to ensure the same issues won’t have you fall behind on the new loan facility. In that case you would simply incur fees to establish the new loan and remain in the same position.
Q : Are lenders who offer mortgage arrears loans reputable?
A : All lenders in Australia are registered under ASIC and must meet ASIC’s requirements.
Some of the requirements include
- hold an Australian Credit Licence
- have an internal and external dispute resolution scheme
- plus meet an exhaustive list of lending requirements to meet Australian lending guidelines.
All loans must meet the term as being “not unsuitable”. Yes, it is an unusual term but all lenders must prove why a loan is suitable. They have to do this from a starting from a point showing where a loan is unsuitable. From there, they must provide a case why it is now not unsuitable.
Q : If I have a mortgage arrears, how long before repossession occurs?
A : The process to recover or sell your property can differ from lender to lender depending on their internal collection policy. Below you can read an example relevant to the processes in Australia:
- Day 1 – monthly payment due and not paid.
- 30 days Default – a lender provides a default notice 30 days after non payment.
- Notice to pay – this needs to be sent before a repossession can occur. Notice to pay generally is sent within 30 days after the default. If the mortgage allows it can be sent before 1 month.
- Repossession can occur 1 month after the notice to pay is sent.
- Court orders to instruct a sheriff – legally a lender can change locks and remove occupants from the property 1 month after the notice to pay. However, a lender will usually proceed to court to obtain instructions for a sheriff to evict the homeowner. This is because the lender may expose themselves and be held liable for civil or criminal damages for excessive force. The result is that court proceedings can take time.
Other factors that can affect or delay a repossession is where the lender may need to answer to a credit ombudsman complaint. this happens in a large number of mortgage arrears cases. These can stall and delay the repossession process, however in most cases are only a delay tactic.
We have seen repossessions occur 6 months, and even 12 month after the first non payment of a home loan.
We have successfully refinanced home loans in arrears with more than 12 months missed payments on a home loan. These long term arrears are very rare to see these days, with most cases in the 3-6 month range. This is because lenders do not tend to leave arrears ongoing for too long.
An escalation of the collection process, or more correctly termed ‘lender dedication’ to the repossession can occur when a perceived negative equity position is pending or occurred. This is where the collection fees, default fees, default interest, loan interest, legal fees, court costs are all added to your loan. They erode the equity to a point where the loan balance exceeds the value of the property as a forced sale. The lenders also understand when a foreclosure occurs the property is not always left in a satisfactory state for a top dollar sale. They may obtain a depressed sale value further eroding the funds available to close the loan plus cover refinancing costs.
Q : What are the common causes for mortgage arrears in Australia?
A : There are many causes for non payment of a home loan which all generally come under the term ‘capacity to pay’. The capacity to pay is diminished in some way, and this causes delay or stoppages in payments. The capacity to pay a home loan or debts, can be diminished in a variety of ways with some listed below:
- Mental incapacity or illness by way of depression, or other illness.
- Physical incapacity – injury and an inability to work permanently or temporarily.
- Gambling – When gambling is present, the applicants can usually hold down a job and generate income. Through gambling losses, the capacity to service a loan can be severely diminished.
- Loss of a job.
- Sickness such as cancer or any illness requiring hospitalisation. Other illnesses can cost a large amount of income reduction. If normally two people work to bring income into a household and one falls sick it can have multiple affects. The second person may have to also reduce their hours to assist the other party which means potentially one wage is lost and another is halved or also reduced.
- Economic changes affecting work and hence income.
Q : Will banks refinance when I have bad credit?
A : We have home loan lenders that can cater for most bad credit issues including paying out a bankruptcy, court judgements and writs, credit defaults and credit score problems. The bad credit needs to be understood by the lenders, not attempted to be hidden. We understand intimately the requirements of the various lenders, the underlying causes of credit issues, and debt collection processes to enable a smooth finance process from enquiry through to approval and settlement.
Q : Can I refinance only the mortgage arrears amount?
A : Usually no.
A lender would need to take security against the property for the new loan amount. If you are seeking a second mortgage behind your existing mortgage in arrears, the first mortgage lender would not approve the second mortgage because the first mortgage had issues.
Q : Can I just get some mortgage arrears advice?
A : Yes, we are here to help. At times a refinance is not possible to clear arrears. We are happy to give advice on other options, and our loan proposals are free of charge.
Q : What types of mortgage arrears fees can a lender charge?
A : Here is a list of fees that may be charged to your loan:
- Default interest
- Payment reversal fees
- Default fees
- Court costs
- Legal fees including repossession costs
- There is of course your normal interest cost which accrues to your home loan until the property is sold, and the loan closed.
Q : What are the Mortgage arrears statistics in Australia?
A : As of May 2017, Moodys Investors Service, indicated arrears on home loans reached a 5 year high. Moodys recorded a 30+ days in arrears delinquency rate of 1.62% of all mortgages. The rise was determined as being related to the weakening of the mining sector, higher under employment, and a less than favourable housing market in some arrears.
Q : What is mortgage hardship assistance? What is the benefit over a full refinance?
A : Mortgage hardship assistance is a governmental regulated policy that all consumer mortgages must offer. It is an internal process to assist consumers in rectifying home loan arrears. Some solutions might be to add the arrears to the end of the loan, or make higher payments over a short time to help bring the home loan out of arrears.
The benefit is in a cost saving. The hardship is policy driven by the lenders and there are no set up costs. Not all cases for hardship are granted. At times the requirements for higher payments cannot be met, hence the next viable option would be a full refinance.
In most cases, the expected repayment to bring the loan out of arrears could be much higher than the payment on a new loan. We would need to assess your new loan repayment, which we would provide as a result of our loan arrears assessment. This is included in our free loan arrears proposal.