What happens if you can’t make your mortgage repayments?
Inflation and the rising cost of living is affecting a lot of New Zealanders. Those who entered the property market with record low interest rates may start to feel the pinch as these rates continue to climb.
So what should you do if you can’t meet your mortgage repayments?
Talk to your lender
If you think you may struggle to meet your loan obligations, the first place to go is your lender. The earlier you touch base to discuss your options the better off you will be. Waiting until your loan is in default will compound the problem and make your situation harder to rectify. Your lender may be able to restructure your loan or change you to interest only payments. Interest only payments mean your loan principal won’t go up, but it also won’t go down. If you are still unable to make your repayments, you may be able to apply for financial hardship.
Financial hardship application
By law you have the right to ask your lender for a change your mortgage if you meet the following criteria:
- You have suffered a hardship you couldn’t reasonably foresee, such as loss of employment or death of a partner; and
- As a result of the hardship, you cannot meet your mortgage repayments; and
- You believe you would be able to make your mortgage repayments if your loan agreement was restructured (see below).
You cannot make a hardship application:
- If you’ve failed to make four or more repayments in a row; or
- If you’ve been in default for two weeks or more after receiving a notice that you’re in default on your mortgage; or
- After two months of being in default on your repayments.
Again, you need to deal with this early.
If you make a hardship application by meeting the above criteria, your lender is required to consider it and follow specific processes. The changes that can be made include
- Extending the term of the loan agreement and reducing the repayment amounts; or
- A payment holiday (your repayments are postponed for a specific period); or
- A combination of the above.
These options will relieve the pressure temporarily, but it is important to note they are likely to increase the total amount owing on a loan. The changes you ask for must be fair and reasonable to both you and your lender.
Refinancing with a new lender offering lower interest rates can be option in some circumstances. You will have to make sure there are no break fees or cash-contributions you will have to pay back should you jump to a new lender. If you are thinking of refinancing you can get in touch with us, your broker or your bank to determine whether this is the right option for you.
If you are unable to get your payments back on track, your lender has the legal right to start the debt recovery process which may (in the worst case) lead to a mortgagee sale. This process is not a fast one as there are several legal obligations the lender must comply with before they can sell your home. If you believe this process is likely to start, or has started, get in touch with one of our team as soon as possible and we will guide you through it and work through some options with you.
The most important thing you can do when facing the possibility of defaulting on your loan is to act early. Get in touch with us or your lender as soon as you can to avoid the possibility of a mortgagee sale.