What happens if I miss mortgage repayments?

When we sign up for a home loan, we can get so caught up in the dream of owning a home that we sometimes don’t adequately prepare for the actual impact the repayments may have on our life. If you run into financial trouble and miss a payment, not only may you be stung by fees, but your credit score could also be affected, potentially magnifying your financial woes.

I’ve missed a payment – what happens next?

If you miss a scheduled mortgage repayment, your mortgage lender will take several steps to resolve the situation. The exact process may vary, but often goes something like this: 

1. Letter of demand: The bank will reach out to remind you that your repayment is overdue by sending an official Letter of Demand to your contact address. They may also reach out to you by phone, SMS, and email. If you’re able to make up the repayment at this stage, that may be the end of the story, though you may be hit with a late payment fee.
2. Late payment: Once your mortgage repayment is overdue by 14 days or more, the lender will report it to a credit reporting bureau. Having a late payment in your credit history may affect your credit score. 
3. Default: If your repayment is 90 days overdue and the bank has been unable to reach you, they’ll send you a default notice. This typically gives you 30 days to get your repayments up to date. Having a default on your credit file will likely make a significant impact on your credit score. 
4. Debt recovery: Your lender will begin taking steps to recover your repayment, such as serving you with a Statement of Claim or a summons. They may also commence legal proceedings to recover the debt. In a worst-case scenario, this could lead to the property being repossessed by the lender. 

What can I do if I miss a mortgage repayment?

• Contact your lender to notify them why you missed your payment, explain how you would like to make up the missed payment and ask for their assistance if needed. Taking the first step of reaching out to your lender can often have better results than trying to avoid or hide the issue.
• Sit down and lay out your budget, clearly marking all your expenditures. You might be surprised to find out where your money is actually going and where you can tighten the shoe strings in one part of your life to better accommodate your mortgage repayments.
• Assess your options for getting your payments back on track. Some of these options could include taking a repayment holiday, switching to interest-only repayments for a limited time, extending your home loan term, or selling your property (if it comes to that). Alternatively, chat to your lender’s hardship team about changing the terms of your loan to accommodate your short-term financial difficulties. 
• Professionals may be able to help you with your predicaments. Mortgage brokers and financial advisers may be able to suggest home loan options that could help make managing your repayments simpler. A financial counsellor (such as from the National Debt Helpline) may be able to work with you to help get your finances back on track. And if you end up involved in legal proceedings, it’s worth considering seeking advice from a legal professional.  

If you’re experiencing mortgage stress and are concerned you could miss a home loan repayment in the future, there may be steps you can take to hopefully prevent this before it happens. You could compare home loans to see if you can refinance to a mortgage with a more affordable interest rate. You can also contact your lender and speak to their hardship team to look into adjusting your mortgage terms so your repayments can be easier to manage. 

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