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How to avoid repossession of your investment property

24 FEB 2018 By Bianca Dabu 6 min read Hotspots

Keeping up with mortgage repayments can be challenging, but it can also be downright impossible, especially if you’re faced with unexpected life crises. So, how can you keep your investment property amidst trouble with debt?

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The good news is that lenders don’t immediately take legal action in the event that you miss a repayment. You will usually be given a minimum of 30 days to rectify the issue and be asked to pay the missed repayment fee.

According to the Australian Securities and Investments Commission (ASIC), lenders usually are willing to help you deal with your arrears—the money you owed—so don’t hesitate to act quickly in order to avoid creating a bigger problem.

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Get in touch with your lender as soon as possible, explain your situation, and agree to a repayment arrangement so you can catch up.

Your options

If you are unable to bring your repayments up to date, one of the things you can do to save your home is applying for a hardship variation.

According to ASIC, your ability to access a hardship variation depends on when you took out your home loan.

If you signed a credit contract on or after March 2013, your hardship variation application will be considered regardless of the amount of your loan.

Meanwhile, if you signed a credit contract between July 2010 and February 2013, your loan must not exceed $500,000 in order to be able to apply for a hardship variation.

To apply, talk to your lender by phone or in writing, then ask to speak to a hardship officer to whom you can share the reason behind your financial difficulties and consequently request to change the terms of your loan repayments.

Some of the adjustments that can be made are:

  • Extending the loan period
  • Postponing repayments for a certain period
  • Extending the loan period and postponing repayments for a certain period

Lenders are under legal obligation to respond to hardship concerns within 21 days.

If you find the lender’s decision disappointing, you can reach out to the Ombudsman for a free external dispute resolution scheme.

You can also seek financial counselling or free legal advice, which is available in each state and territory, to know how you can avoid having your home repossessed by the lender or the bank.

ASIC advises against borrowing more money and using credit cards, refinancing or debt consolidation, switching home loans and accessing your superannuation, which may all lead to more costs over time.

Smarter borrowing

In order to avoid being in the same dire debt situation, make sure to have a solid plan for managing your debts.

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Before applying for a loan, determine your capability to repay in the next few years, then shop around and compare loan products to find the best deal.

Once you have applied for a loan and familiarised yourself with the terms and conditions, set a realistic budget based on the total amount you owe, take note of the amount you have left over, and determine how big a part of this do you want to dedicate to extra repayments, if applicable.

This way, you can still keep up with your repayments without having to deprive yourself in terms of lifestyle.

Start your repayments as soon as possible and make sure to continue paying at least the minimum repayment on your debt to avoid late payment and its associated fees. You can choose to set up an automatic payment from your bank account to lessen the hassle of making repayments regularly.

 

This information has been sourced from the Australian Securities and Investments Commission and the Smart Property Investment website.

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