Like much of the world, New Zealanders are facing a sharp rise in the cost of living, with already overstretched household budgets being pushed even further by mortgage interest rate rises. Those homeowners who entered the property market at the peak of the property boom with record low interest rates, may already be feeling the pinch as interest rates continue to rise. Here’s what to do if you are unable to repay your mortgage.

1.    Talk to your lender

If you are concerned about meeting your loan obligations and you anticipate you may be at risk of missing a mortgage repayment, the first place to go is to your lender. Get in touch with your lender before you miss a mortgage repayment, as the sooner you contact them the more chance there is of finding a solution. Waiting until you’ve missed a repayment will only make the situation worse.

2.    Apply for financial hardship

Before you miss a mortgage repayment, you may be able to request a change to your mortgage due to financial hardship. Lenders are required by law to consider any applications made for changes to a mortgage provided you meet the following criteria:

• You have suffered a hardship you couldn’t reasonably foresee, such as loss of employment or death of a partner; and
• As a result of the hardship, you cannot meet your mortgage repayments; and
• You believe you would be able to make your mortgage repayments if your loan agreement was restructured. 

You cannot make a hardship application:

• If you’ve failed to make four or more repayments in a row; or
• If you’ve been in default for two weeks or more after receiving a notice that you’re in default on your mortgage; or
• After two months of being in default on your repayments. 

The changes that could be made include: 

• Extending the term of your loan agreement and reducing the repayment amounts; or
• A payment holiday whereby your repayments are postponed for a specific period; or
• A combination of the above.

While these options could help alleviate some of the financial pressure you’re feeling right now, it’s important to note they will increase the total amount you owe on your mortgage and that your repayments may increase when you resume your loan obligations.

3.    Refinance your mortgage

Another option to consider if you’re struggling to meet your current mortgage repayments is to refinance your home loan with a new lender that offers lower interest rates or an extended loan term. Before considering this option, check that there are no break fees or cash contributions you’re required to pay back if you switch lenders.

4.    Re-assess your financial situation

A review of your current financial situation could help reduce your risk of exposure to interest rate movements. Meet with a Mortgage Express branded mortgage adviser to go over your income and expenses, check that your mortgage interest rate or loan terms are set up in the most favourable way, and determine if there is anything you can do to improve your financial situation.

5.    Sell your home

As a final option, if you’re unable to get your mortgage repayments back on track, and before the lender starts the debt recovery process that could lead to a mortgagee sale, consider selling your property.  

The most important thing you can do if faced with the possibility of a mortgage default, is to act as soon as possible. Contact a Mortgage Express branded mortgage adviser to discuss a financial solution and to get advice around help with repaying your mortgage.