Home Loan Assistance
If you start having difficulty with your home loan, it’s best to speak to your bank early. There may be some simple steps you can take to avoid a bigger problem down the track.
Customers in financial hardship are entitled to apply for Hardship Assistance in order to help them through a difficult time. In most cases, this is a short-term solution unless your loan can be varied (loan payments reduced and term extended) by the lender.
You may be able to reduce costs by shopping around for a better home loan. You need to compare:
- Interest rate
- Loan fees
- Switching costs.
Sometimes you can ask for a rate discount and the bank will grant it on the spot, reducing your repayments.
If you have other debts, you might consider consolidating these into your home loan as mortgages usually have lower interest rates than other loans. This can reduce your total monthly payments but may well end up costing more as a home loan is generally a long term commitment.
Income Protection Insurance can be a great benefit for people with mortgage or financial commitments. It replaces your income, or a portion of it, in the event that you are unable to work, however, it is usually time limited. Many superannuation policies also have benefits payable when work is lost due to injury or severe illness. Superannuation can be accessed early under strict hardship provisions - up to $10,000 per year if you are facing the loss of your home.
The Victorian government also provides a Mortgage Relief Scheme to assist people in temporary hardship stay in their home. Eligibility criteria applies - For full details click here
What about Mortgage Insurance? Some home loan clients are required to pay Lender Mortgage Insurance when taking out the loan. But note, this insurance covers the bank against losses but not you against mortgage difficulties. It also doesn’t stop the bank chasing borrowers for a shortfall after a property is sold.
CASE STUDY: Shopping around
Rebecca found a new home loan that could save her $75 per month in loan repayments. She called her bank to ask about moving her loan and they immediately gave her a lower interest rate saving her $85 per month - over $1000 per year!
To avoid difficulties with your home loan, look at your overall financial situation to analyse how to better use your available income. A Financial Counsellor can help you plan your spending so you can better afford the major monthly expenses without the pain.
The MoneySmart Mortgage Calculator lets you compare interest rates and repayment rates to work out the impact on paying off a home loan mortgage.