Interest rate rise pain: How to get mortgage hardship assistance

Households are feeling the pinch as interest rates rise at their fastest pace in decades. Here’s how to get assistance.

Surging home loan interest rates are piling financial pressure onto many households, but borrowers should remember that there is help available before the strain reaches breaking point.

Banks and other lenders became experts in offering hardship help when Covid-19 struck in 2020, and the recent sudden spike in interest rates – up 1.75 percentage points since May – is tougher for some households than the pandemic was.

Finance specialists say the key is to identify problems early, use existing financial resources before seeking formal assistance, and talk to your lender before they come chasing you.

Canstar’s group executive financial services, Steve Mickenbecker, says many home loans have a pandemic-fuelled buffer, with extra cash sitting in offset accounts or available for redraw.

This should be used before asking the bank for help, even if the money was earmarked for lifestyle spending such as a holiday, which a lender would see as frivolous, Mickenbecker says.

REPAYMENT HOLIDAYS

“They will be saying ‘hold on – use this to supplement your payments for now’. If you take an expensive holiday then say you can’t afford mortgage repayments, the bank will take a rather dim view of you.”

Lenders may be reluctant to provide total repayment holidays, and are more likely to offer reduced repayments for a period, Mickenbecker says.

Some borrowers may be able to temporarily switch to an interest-only loan to cut the cost.

“You do have to choose your time carefully – you don’t get hardship help indefinitely,” Mickenbecker says.

“Take whatever steps are in your power to get up to date and try to make your repayments. If you’ve done all that, talk to your bank before you go into arrears,” he says.

“There’s nothing worse than them having to chase you. They’re not a charity and they expect their loans to be repaid.”

Canstar’s Steve Mickenbecker says talk to your bank before you go into arrears.

Consider free financial counselling services and be wary of debt restructuring businesses that may “charge you thousands of dollars you don’t have”, Mickenbecker says.

“Always be conscious that the bank will be looking for a solution – think about how you will get out of it,” he says.

Moneysmart.gov.au has detailed information about navigating through financial hardship and asking for assistance.

ACT FAST

Rebecca Jarrett-Dalton, founder of mortgage broker Two Red Shoes, says speaking with your lender quickly can help protect your credit rating.

“If you have redraw, can this be used to top up the repayments you’re making currently while you look for another solution?” she says.

“Can you negotiate an interest rate discount or change your loan type? The caveat to this is once in hardship they are less keen to discount the interest rate.

“Outside your mortgage, what other expenses can you negotiate or remove, such as closing unnecessary cards or debt consolidation?”

Jarrett-Dalton says state and federal governments have limited financial counselling services, and free counselling is available from the National Debt Helpline on 1800 007 007 or some services run by charities.

Oracle Lending Solutions managing director Angelo Benedetti says first check that the rate you’re currently paying is competitive.

“We are finding a lot of people still have rates that aren’t that great,” he says.

“Fixed rates can expire and go back to an average rate and not a discount rate. Just this morning we saved someone 0.6 per cent on an old rate.”

Rebecca Jarrett-Dalton says acting fast can protect your credit rating. Picture: Kirsten Flavell

Benedetti says people who access their lender’s hardship support systems should understand that this may impact their ability to refinance in the future or get the best available deal.

“It can work against you and be detrimental to borrowing down the track,” he says.

Instead, exhaust other options first before applying for hardship help, Benedetti says.

He says people worried about their debts should contact their lender quickly rather than leave it to the last minute. “There’s going to be more pain going forward, so get on the front foot.”

PROVING FINANCIAL HARDSHIP

• People applying for hardship assistance should be prepared to show their current income and expenses, the repayments they can afford, and the reason they are experiencing problems.

• Keep notes of any phone discussions with lenders, it says.

• The Australian Banking Association has a financial assistance hub that can help.

• The Financial Rights Legal Centre has a sample letter generator to help people apply for assistance.

Source: Moneysmart.gov.au