Mortgage origination: take charge and overcome mortgage stress

Mortgage lending is still active in Australia despite the tough economic environment. The recently increased Government First Home Owners Grant (FHOG) has been generating more interest from the first home-buyer market in recent months. We have received an increase in applications by first home-buyers of 3 per cent since the introduction of the Government stimulus package.

But despite this, growing unemployment, house price depreciation and the continuing deterioration in the global markets is creating uncertainty for many would-be borrowers.

Growing uncertainty in unemployment in particular could lead to potential borrowers choosing to delay the purchase of a property even with Government stimulus and house price depreciation.

Unemployment is also a big concern for those borrowers already in the property market.

There are a growing number of borrowers who have recently been affected by job loss and are struggling to meet their mortgage repayments.

It is now important for borrowers to understand that if they lose their job there are ways to avoid mortgage stress.

By assessing the situation early and seeking advice, borrowers can potentially avoid a mortgage stress spiral and losing their home. Here are some simple tips for borrowers to avoid mortgage stress because of job loss.

1. Take advantage of any insurance arrangements early

You may have mortgage protection insurance, income protection insurance or salary continuance. If so, it is important you establish contact with your insurance provider as soon as your circumstances change to avoid delays in processing or payment.

2. Take control of financial commitments

The most effective strategy for better personal financial management is to set a budget. Don’t discount how effective a monthly budget can be in providing a financial framework to better manage personal finances, especially when your circumstances change.

Often this process helps to identify all variable and fixed expenses. This will assist you with looking at ways to reduce expenses relatively quickly.

Budgets should not be considered a restraint, but rather a proactive approach of how to spend cash and factor in commitments. Setting an unrealistic budget is going to fail, so be practical and allow for some flexibility.

3. If in trouble, contact your lender immediately

If you do not think you can continue to meet your mortgage repayments, you should contact your lender immediately.

If given the opportunity early, there are a number of ways a lender can assist you if you are experiencing mortgage stress.

Options may include a repayment break for a short period of time to allow a borrower to get back on their feet, switching to an interest-only option, or extending the loan term for a short period to reduce repayments.

These are just some of the options a lender may explore. All are designed to keep borrowers in their home and allow enough time to recover.

Often the lender and lender’s mortgage insurance provider have programs in place designed to assist borrowers experiencing hardship. Some options the programs can offer include:

• capitalise arrears;
• postpone payments for an agreed time;
• agree to part payments if the borrower/s have some income;
• convert to interest only for an agreed period; and
• extend the loan term to reduce repayments.

4. Check eligibility criteria for mortgage assistance programs

There are a number of state government mortgage assistance schemes available.

The schemes vary among states, but each scheme is designed to provide support for borrowers experiencing difficulty meeting their mortgage repayments.

5. Explore access to superannuation

If you are in a stressed situation you may be able to apply to the Australian Prudential Regulatory Authority (APRA) to access your superannuation to meet repayment arrears. When considering this option it is important you understand all implications and you seek advice in determining if this is the right option for your circumstances.

6. Assess the circumstances

Sometimes it is not in a borrower’s interest to keep their home. Electing to try to keep a home and meet mortgage commitments may not always be the best option. It is important to be realistic and consider all options, which may include selling the house.

Trying to meet repayments with no end in sight can eventuate in a mortgage stress cycle, making the current situation much worse and more difficult to recover from.

When considering options it is important to seek advice. There are many options available to assist you with this decision and ensure that it is the right decision given the circumstances.

In some instances, some lenders may provide a financial benefit to borrowers who are looking to pursue this course of action.

7. Will the lender grant a period of ‘no legal action’?

A period of ‘no legal action’ allows you to sell the property yourself. Obtaining this will help to ease the pressure if you have made the decision to sell the property. It will also potentially mean the property can be sold at maximum value because it will not be a ‘mortgage in possession’ sale.

Furthermore, there are intangible benefits.

Firstly, you gain the peace of mind that maintaining control over the sale process brings, without the added strain of worrying about the lender’s course of action.

Secondly, there are also long-term benefits if, in the future, you want to re-enter the property market, you can do so without the potential of being a credit-impaired borrower.

Peter Hall is country executive at Genworth Financial.