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Are you behind on your mortgage? Here’s what you need to do

Fallen behind on your home loan repayments? Here's how to get yourself out of mortgage arrears. (Photo: Getty)
Fallen behind on your home loan repayments? Here's how to get yourself out of mortgage arrears. (Photo: Getty)

If you’ve fallen behind on your mortgage repayments, you’re certainly not alone.

Australia has officially reached the highest rate of housing loans in arrears since the global financial crisis.

And if we’re not falling behind, we’re worried about it: mortgage stress affects more than a million households across the nation.

But if this has happened to you, all is not lost: you can salvage the situation if you deal with it quickly.

“If you are having problems paying your mortgage don’t bury your head in the sand,” said Yahoo Finance property expert Michael Yardney.

“There are a number of steps you can take to stop the situation escalating and having the bank take possession of your home.”

Here are four things you need to do:

1. Speak to your lender

Let them know the situation you’re in. “They will be keen to help – they don’t really want to take possession of your home,” Yardney said.

Put into writing why you missed a payment or a why you might miss a future payment, as well as how you plan to catch up.

There a few things that the lender might do to help you:

  • ‘Redraw facility’: A lot of borrowers haven’t reduced their regular mortgage repayments as interest rates have fallen over the last few years. Effectively, they’ve been paying extra off their mortgage balance, Yardney pointed out. “The bank may allow you to use this ‘redraw facility’ rather than making cash repayments.”

  • ‘Hardship variation’: In what’s called a ‘hardship variation’, your lender might temporarily suspend your mortgage payments or change the terms of the loan to help you out. “They will still charge you interest on your home loan, but this will be added to your balance owing.”

  • Payment reduction: Instead of fully suspending your mortgage payments for a short while, your lender may permit a temporary reduction in payments, or change your loan from principal and interest to an interest-only loan. This will see you pay less every month as you’re no longer paying off the loan itself.

  • Mortgage extension: Your lender might extend the terms of your mortgage from 20 to 25 years, for example, meaning the loan will be spread out for longer and the monthly repayments will be reduced. “But beware,” Yardney warned. “Over the long run you’ll pay more interest, so once you’re financial again it would pay to reduce your debt by increasing your repayments.”

2. Budget – now

Document your spending habits and take a look at where you can make some savings, the property expert advised.

Where might you be spending money on non-essentials, such as take-away food, alcohol, entertainment, gambling, or even travel?

Take a good, hard look at your ‘essentials’ spending, too. How much are you paying for your utilities bills? Australians are too often paying the ‘lazy tax’ or the ‘loyalty tax’ for failing to take the effort to switch phone, energy, internet, or water providers and forking out more as a result.

Get in touch with your utilities providers and find out whether you can negotiate a better deal, or otherwise shop around. A number of financial comparison websites are available for free online, such as or the government’s energy comparison tool, Energy Made Easy, that can help you see what options are out there.

Meanwhile, negotiating with your phone company could be as easy as just picking up the phone and asking.

Consider switching: there are plenty of smaller providers that piggyback off the major networks.

3. Get help from a financial counsellor

The National Debt Helpline, on 1800 007 007, is totally free of charge and will put you in touch with a financial counsellor who will provide you with free, confidential and independent advice.

According to Yardney, here are some things they might do to help:

  • Suggest ways to improve your financial situation

  • Find out if you are eligible for government assistance

  • Negotiate repayment arrangements with your creditors

  • Explain your options and their consequences, including debt recovery procedures, bankruptcy and other alternatives

  • Help you apply for a hardship variation

  • Help you get your finances together and create a budget

  • Refer you to other services, such as a gambling helpline, family support, personal counselling or community legal aid.

4. Seek legal advice

“If your financial situation is dire consider seeking legal advice,” said Yardney.

While you may not be able to afford a private solicitor, there are free Legal Aid services available in every state:

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