In our April show on Noongar Radio, CCLSWA Principal Solicitor, Gemma Mitchell answered the following questions about home loans and your options when you miss a payment.
What should you consider before taking out a home loan?
Before applying for a home loan, you should consider – what does your credit report look like? A credit report contains details of your credit history and will help a lender determine whether you are a good candidate for a loan. Your credit report may affect whether your lender will approve your loan application. You can request a free copy of your credit history online by going to www.mycreditfile.com.au
What happens if you miss a repayment?
If you miss a repayment you will be in default. If you are in default on your home loan, your lender will send you a default notice, giving you 30 days to fix the default. If you make the repayment you will no longer be in default. If you cannot make your repayment within the 30 days, your lender may start taking steps to recover the money owing including repossession of the property.
If you find yourself having difficulty making your repayments due to circumstances such as illness or unemployment, you can request your lender to vary your loan agreement for a temporary period of time.
This is what is known as a hardship variation. Your lender will consider your application and either accept or reject it.
Your lender will consider if you will be able to start making regular payments after the temporary hardship variation period has ended. Your lender may not grant you a hardship variation if they think you will be unable to continue making regular repayments in the future.
We have a fact sheet on our website that lists the steps a person can take to apply for a hardship variation. This can be found at http://cclswa.org.au/advice/hardship/ . We recommend you apply for hardship variation in writing to your lender’s Internal Dispute Resolution department.
The repossession process
If your hardship variation is rejected, or the time period is up and you still can’t make repayments, the lender may get a judgment against you.
This means they might go to court to get a judgment saying that they are legally entitled to take your home. They do this in order to sell your home and use that money to repay the amount that you owe. Before this occurs, you can contact your lender to try to negotiate to refinance the loan, or negotiate for more time to sell your home yourself.
If the lender refuses to negotiate, you could lodge a dispute with the lender’s external dispute resolution scheme. Our website gives you details on how to do this under the “advice” tab, where it says “hardship”.
If a judgment is entered against you, this means that the lender can legally take possession of your home. You will usually receive court documents in the mail giving you 28 days to make sure that your property is empty of all of your possessions before you give it to your lender. It may be possible for you to negotiate with the lender to make this 28-day period longer. However, the lender is not obliged to agree.
What will happen when the 28 days expire?
If the 28 days have passed, a sheriff may come to change the locks and force you to leave your home. The lender will then take possession of your home and try to sell it to repay your outstanding debt. If there is an amount left over, you will receive that amount, less any reasonable costs associated with selling. If there is a shortfall between the sale price and the amount owing, you will still be required by your lender to pay that shortfall amount.
- Taking out a home loan is a big decision – take time to consider carefully a repayment amount per month that you can afford.
- Remember that if you have circumstances causing you to be unable to meet your repayments, you can apply for a hardship variation.
- If you receive a default notice because you missed your repayment, and you fix the default by making the required repayment before the 30 day period is up, you will no longer be in default.
- If you have an issue about your home loan, you can get more information by visiting our website cclswa.org.au
- Or you can call our telephone advice line on (08) 9221 7066.