Mortgate troubles? Get help right away Nicole Pedersen-McKinnon September 4, 2011
Consolidating debt into a mortgage, with its lower interest rate, can be one way to ease financial stress. If you're facing repayment difficulties, ASIC offers timely advice on how best to proceed.
Are your mortgage payments getting harder to meet? Stick your head in the sand and it could turn out to be quicksand but put your hand up and there is help available to pull you out. That's the message the regulator ASIC, newly responsible for credit, is seeking to spread this month.
Let's talk about three potential scenarios, increasing in severity, and how you can effectively deal with them.
Scenario: You are at your affordability limit and another rate rise would put you over it.
Advertisement: Story continues below Strategy: You need to step back and take stock of your situation now, before it becomes more serious.
The best place to start is your budget - like the way I assumed you have one? Bottom line is you need to find out where the money is going and how you can retain some of it.
Get out a nice big piece of paper - or spreadsheet if you're technologically inclined - and split it into two columns: incomings and outgoings. Then split outgoings again into your bills and other expenses.
List every bill you can think of, factoring in recent increases in costs such as electricity, and divide quarterly or annual bills by the number of pay packets in the period. And it pays to add 10 per cent to your ''other'' total because, for sure, there'll be things you forget.
As I say often in these pages, it's possible to dramatically slash your bills by simply changing providers - none more so than your mortgage itself.
Nothing stops you either: ASIC has decreed exit penalties must now be fair and is on the warpath for offending institutions.
How much you can save on the luxuries will depend on what you are willing to forgo - and how desperate the situation.
Scenario: You have already missed a mortgage payment.
Strategy: Speak with your lender and explain why - they have an obligation to listen and, particularly if the hardship is short term, to assist. They may do this by reducing your repayments by making them interest-only or by extending the length of your loan (both alternatives will increase the interest you'll pay overall).
ASIC says the sooner you speak with your lender, the more options you'll have. Its website also carries sample letters explaining how to apply for a hardship variation. If this yields no response, you can also find clips of how to complain to the Financial Ombudsman Service.
At all times be wary of consolidating other debts into your mortgage. This will also ultimately increase the interest you pay - sure, you'll get a lower rate but on a loan that runs for 25 or 30 years - and it puts more assets in jeopardy if you default later.
Scenario: You're behind on your repayments and enforcement proceedings have begun.
Strategy: Even if your lender has taken legal action against you, you have options. For example, it may be possible to get early access to some super if it would save your home, under severe financial hardship provisions.
But don't forget that you are responsible for any shortfall between the price fetched and the loan outstanding. It may be preferable before it gets to that stage to sell the house yourself, rather than wait for a mortgagee sale, which could net a lower price.
At this, or the previous point, you may consider seeing a counsellor to make your future finances sustainable (see www.financialcounsellingaustralia.org.au).
You can find more information about all this on ASIC's website moneysmart.gov.au. As part of its mortgage-health month, there is also an interactive mortgage health check that will tell you, via four questions, just how safe - or precarious - is your situation.
