What is mortgage restructuring?

You may find it surprising, but most lenders are willing to work with their customers to prevent them from defaulting on their home loans. Generally, all lenders provide hardship assistance to help their customers through tough times. If you are going through a difficult time, you can contact your lender and ask them to change your loan repayments because you are experiencing financial difficulty. The lender will want to know why you are finding it difficult to make your repayments and how long your financial problems are likely to last.

Depending on your financial situation and how much you can afford to pay, the lender may agree to restructure your mortgage by changing the terms of your loan. The lender may reduce your repayments to something you can realistically afford to pay or defer your repayments temporarily. Some lenders may even agree to reduce the interest rate charged on your loan or allow you a fee waiver, but this is not very common.

It's worth noting that mortgage restructuring isn't going to reduce your debt. Even if you defer the payments for a few months, you'll still owe the payments you miss and the interest on it. Another option may be increasing the loan term to reduce your repayment size, but the longer the loan term, the more you are likely to pay in interest. Mortgage restructuring will also not fix any late payments that have already been reported to the credit reporting agencies. The aim of mortgage restructuring is simply to help you avoid defaulting on your loan while you work on a realistic plan to bring your financial situation on track and get back to normal repayments.

Sometimes, it's also possible to restructure your mortgage when switching homes. This is also known as home loan porting or substitution of security, and it is a common home loan feature offered by many lenders. Home loan porting allows you to continue with the same home loan, substituting your current home with your new home as security.

Think of it as transferring your internet connection to your new home – the address on the bill changes, but everything else stays the same. Similarly, porting your home loan allows you to transfer your existing mortgage to your new property, including your remaining balance, term, and the interest rate.

You may choose this option to avoid the time and money spent on closing an existing loan and setting up a new one, but you might miss out on more competitive rates offered by other lenders. Moreover, you can generally only use this option if you purchase a home that's equal to or higher in value than your current home.