August 10, 2017
Life happens. Unexpected bills, redundancy, or even simply getting in over your head financially. ‘Life happening’ can be an even more challenging experience when you’re paying down a mortgage. If you run into financial trouble for one reason or another and can’t make your repayments, your account will go into arrears. This can spell financial disaster as lenders are less likely to offer you the best deals in the future when you have a history of falling behind on your mortgage repayments.
One solution that can help you when you find yourself struggling to pay down your home loan is to refinance. When you switch to a new loan with a longer term and a lower interest rate, you can reduce your monthly repayments significantly. This means you’ll owe less each month. It will be easier to manage your mortgage and to have enough money to get ahead with other expenses and start saving again.
If you choose to refinance a home loan that’s in arrears, here are your options.
You may be able to refinance with your current lender. Most major banks, however, are not likely to offer a new loan to you if you’ve built up a track record of late payments and have fallen far behind. If you are struggling or just missed one payment, yet have a clean credit history other than this, it is possible to stay with your bank when you refinance. Your current lender may also have other options to help you stay on your current loan and to bring it up-to-date. Depending on your situation and your history, your current lender may be forgiving, and even willing to create a workable solution. After all – you’re not the first borrower to go into arrears.
One thing you shouldn’t do is to jump right into an application to refinance. You don’t want to have your bank make another enquiry into your credit file, which may bring down your credit score even more.
Many non-bank lenders have home loan products that are designed for borrowers with bad credit. You may end up paying a higher interest rate, as well as additional expenses such as lender’s mortgage insurance or the lender’s risk fees, but if you can extend the term of your loan, you can still possibly get your mortgage repayments down. This would make your debt more manageable. It could also give you a fresh start on your mortgage that’s in arrears already.
When you extend the duration of your loan, you will pay more over the life of your mortgage. A mortgage broker or specialist can help you compare specialist lenders. They may also be able to help you develop a plan to reduce your debt, boost your credit score and start saving more.
If you go into arrears, you do have options. Don’t assume there’s nothing you can do to improve your finances. Definitely, don’t let your mortgage repayments fall behind even more. Explore what’s available to you by talking to your current lender and/or a mortgage specialist and start moving forward.
Written by Refinancing.com.au
Refinancing.com.au is an end-to-end service that helps people refinance their home loan. We empower you to search for your home loan, and choose the process that suits you.
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