• Home loan terms and mortgage definitions

  • Default

    The failure to meet a debt payment on a due date.

    Home owners who fail to pay their scheduled home loan repayments will breach their credit contract and be in default of the mortgage. If this occurs the lender is within their rights to take legal action – even to the point of repossessing the home – so it’s important that the situation is rectified as quickly as possible. If you’re having difficulty maintaining your loan repayments then you should contact the lender immediately. This gives you the opportunity to discuss any changes to your circumstances and may even allow you to arrange a variation of your contract or a hardship application. However, it’s important to make contact with your lender as soon as your circumstances change and prior to a default. If you fail to make a home loan repayment, the lender will normally contact you to enquire about your late payment and discuss any issues.

    If they’re unable to contact you, or if your issue is unable to be resolved and repayments continue to be missed, they’re likely to issue a formal notice (usually under s80 of the Consumer Credit Code if the loan is regulated by the Code) advising that you are in default of the loan. This notice will specify a date by which you need to rectify the situation and pay the outstanding amount. If you continue to default after the specified time frame, the lender can commence legal proceedings to take possession of your property and arrange for its sale. The proceeds of the sale would then be used to compensate the lender for their loss.  

    Causes of mortgage default

    Mortgage default is often caused by factors beyond our control, such as redundancy or unemployment, illness or injury, relationship breakdown or family issues. Often these events are temporary in nature and lenders may be willing to negotiate an alternative payment arrangement. If you’re affected by an external event and feel the mortgage commitments are beyond your capacity to pay, remember that you can talk to your lender. The most important step is to contact your lender as soon as possible to discuss your circumstances.  

    Seeking financial help

    Of course, having difficulty meeting your repayment obligations may be a reflection of more deep-seated financial issues. Many home owners feel the strain when faced with unexpected expenses, multiple credit card debts or rising interest rates. The additional pressure on the household budget can become too much to bear and people may have difficulty prioritising their spending. If you’re experiencing financial difficulty, some options that may be available to you include:

    • Getting help from a financial adviser or counsellor
    • Reducing your expenses and developing a formal budget
    • Rearranging your finances, perhaps by reducing other financial commitments; and
    • Considering alternative loan arrangements, such as a consolidation loan which replaces multiple debts with a single loan account.

    If you need to discuss your current home loan repayment options, please call RAMS on 13 RAMS that's 13 7267 to talk about your hardship options.