Can You Refinance If You Are Behind on Payments?

February 24, 2017

Can You Refinance If You Are Behind on Payments?

When you took out a mortgage, of course you expected you would be able to make your repayments every month, possibly even making early repayments to help pay down your loan faster. Life, however, does not always go according to plan. Because of redundancy, an illness or injury that puts you out of work, or any other hardship, or simply because you are in over your head financially, you may have had trouble paying your mortgage like many other Australians. The proportion of residential mortgages that are in arrears has been steadily rising over the past three years.

You can look into refinancing as a way to make paying your mortgage back easier. Even if you are in arrears, you may still be able to refinance your home loan.

Why Refinance?

By refinancing at a lower rate or extending the term of your mortgage, you can lower your monthly repayments. This gives you the financial breathing room that you may need to get back on top of your finances. Depending on the deal you get, you can potentially save thousands or tens of thousands on the lifetime cost of your mortgage, or you may end up paying more overall, but with payments that you can manage.

Finding the Right Lender When in Arrears

While refinancing is an option, you may not be able to get a loan from a traditional lender such as the major banks if you are in arrears. This is because once you fall behind on your mortgage, there is more risk involved for lenders who offer you a loan. That does not mean you will not find a lender who will work with you. What it does mean is that you may have to get a loan from a mortgage broker or non-traditional lender which specialises in loans for borrowers with bad credit.

It also means you may not be able to get a lower rate. Lenders offer lower rates to borrowers with strong credit scores. You could still refinance for a longer term, however. This would mean you may add years to your mortgage and have to pay more over the course of the loan, but you would be able to get your financial situation under control with lower monthly repayments.

You may also have to pay Lender’s Mortgage Insurance (LMI), along with risk fees in order to have the opportunity to refinance.

Should You Refinance?

Falling behind on debt repayments can be incredibly stressful. Getting on a path to financial stability can make managing your finances easier and reduce the worry in your life! To help you start a healthy journey, now is a great time to start to learn more about your refinancing options. You can speak with a mortgage broker to assess your situation and to help match you with a lender who offers loans to borrowers with a history of late mortgage repayments.

You also may want to work on bringing down any other debts such as credit card debt or an outstanding auto loan. This may help you have more negotiating room when you go to refinance.

Before seeking to refinance with another lender, you may want to speak with your current lender to find out what they can do for you. Being late on only one repayment or making a partial repayment may help your situation. If your hardship or financial trouble seems to be temporary, it’s possible they may be able to work with you, even offering a refinanced mortgage. Many lenders have hardship teams that exist to find constructive solutions so you will be able to keep your home and keep paying your mortgage.

Refinancing offers a way out when you are having trouble meeting your repayments. Find out more about your options to refinance and make the best decision for your unique situation.

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