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What happens if you're late making your home loan repayments?

By ,| 4 min read

Whether intentional or not, many borrowers will be late making a repayment over the course of their home loan. Sometimes it happens accidentally, other times it’s because you’re struggling with your loan.

Luckily, making a late home loan repayment doesn’t automatically put you in trouble – although it’s still something to avoid.

In this article we’ll look at how late you can make a mortgage repayment and face no consequences and what to do if you get behind on repayments. We also explain what it means to default on your mortgage and how to avoid making late repayments.

How late can you be with a mortgage payment?

Most lenders provide a grace period for late repayments, as it’s not unusual to simply forget a repayment.

However, after a certain number of days – typically between 7 and 15 days – they may opt to charge a late fee. This late fee will be tacked onto your next home loan repayment.

But if you are more than 14 days late to make a repayment, it will likely be recorded as a ‘late payment’ in your credit report.

While this infraction may not be as serious as a default, it can raise alarm bells to lenders reviewing your credit history in the future – particularly if you are a repeat offender.

Also bear in mind that while you may not receive penalties for making slightly late repayments, your lender will take notice. For example, if in the future you want to ask your lender to provide you with the lower interest rate new customers get, they might not be so willing to assist.

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When does a late payment become a mortgage default?

This depends – many lenders won’t formally consider your mortgage to be in default until you’re 90 days behind on repayments.

However, some credit reporting agencies (e.g. Equifax) consider a default to occur after 60 days of not making repayments and will record it in your credit file.

Once you’ve been issued a default notice, you typically have 30 days to fix your default by repaying the amount you’ve missed (plus late fees, possibly).

What to do if you are getting behind on repayments

It’s always better to speak to your lender about your repayment struggles before things get too bad.

The sooner you notify your lender’s hardship team about your difficulty making mortgage repayments, the more help they will be able to offer.

Here are some of the options your lender may offer:

  • Help with restructuring your home loan (e.g. lengthening the loan repayment term)
  • Temporarily providing you with a lower interest rate
  • Temporarily suspending your repayments.

Read more about what to do if you can’t afford your home loan repayments here.

How does a mortgage default impact your credit score?

When you default on your home loan, this is recorded in your credit report and will negatively impact your credit score.

Defaults remain on your credit report for 5 years, and may prove to be an obstacle for borrowers wishing to refinance and apply for loans.

A borrower with home loan defaults indicates a higher level of risk for lenders, but there are ways to improve your credit score.

How to handle a mortgage default

One of the most important things to do when you receive a default notice is to be in close communication with your lender. You could have a clearout recorded on your credit report if your lender tries multiple times to contact you and is unable to do so.

Clearouts stay in your credit file for 7 years, so they’re something to avoid. They suggest that you are trying to avoid your home loan obligations and don’t plan on repaying the debt.

If you are unable to repay the defaulted debt that you owe within the specified time period, you can ask your lender to provide you with an alternative option such as:

  1. Ask the lender to alter your mortgage repayments
  2. Ask the lender to delay enforcement action (this is a statutory notice requiring you to take specific steps to remedy the situation)
  3. Both options 1 and 2 simultaneously.

You can negotiate these terms by speaking to your lender’s hardship team.

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How to avoid making late repayments

Here are some tips to help you avoid making late payments:

1. Speak to your lender if you are struggling to afford your mortgage repayments

If you don’t think you’ll be able to afford your home loan repayments, it’s important to get in touch with your lender’s hardship team as soon as possible.

They’ll likely provide you with options to help alleviate your mortgage stress, such as suspending your repayments for a period of time or giving you a lower interest rate temporarily.

This could help you gain some time to improve your financial situation and figure out how to proceed.

2. Consolidate your debt

If you have other debt (e.g. car loan, personal loan, credit card debt) in addition to your home loan, you may feel overwhelmed sometimes.

Managing multiple debt repayments can be difficult and lead to you unintentionally missing a payment.

Through debt consolidation, you merge your other debts under your home loan. This allows you to make just one monthly repayment charged interest at your home loan rate, which is typically much lower than the rate charged on other debts.

3. Set up direct debit payments

It’s difficult to accidentally miss a repayment if the money is coming out of your account automatically each month.

By setting up a direct debit transaction, you don’t have to remember payment due dates. You can even organise your direct debit in correlation with when you get paid. This gets a big monthly expense out of the way.

If you’re worried about making late payments, Lendi’s Home Loan Specialists may be able to offer you guidance. Book an appointment today to learn more about your options.

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: home loan, default, loan repayment, mortgage repayment, repayments, repayment holiday, credit score, debt consolidation

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