Consumer credit law applies across Australia for credit transactions and defines the responsibilities of parties to those transactions.
You may be entitled to have your mortgage repayments varied if you:
- borrowed less than the threshold for mortgages amount set by consumer credit law (for mortgages taken out before July 1 2010 this amount is approx $347,000, as of October 2010, but check the current amount on the FIDO website. For mortgages taken out after July 1 2010 this amount is $500,000); and
- you are experiencing financial difficulty because of either illness, unemployment or some other reasonable cause; and
- you are able to show that if the payments are varied you will be able to repay the home loan within a reasonable time.
Ask your lender to vary the terms of your contract so your mortgage payments more affordable for you in your circumstances, and ask them to stop charging you interest while a hardship variation is in place. Your lender may be willing to do this for a short time but is not obliged to stop charging interest.
Mortgage contract variations are likely to involve extra interest charges because the loan term will usually be extended as a consequence of any variation. You may be able to make additional payments to return your mortgage to its original position when you are back on your feet again.
Keep your lender informed if you cannot maintain a payment plan you’ve agreed to. If you don’t do this and simply miss payments, your lender may commence legal action that may lead to repossession of your home.
If your lender refuses to negotiate, you may apply to the relevant external dispute resolution scheme for a hardship variation.
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Case study
Scott and Maria got into financial difficulty due to a period of unemployment. They fell three months behind on their mortgage repayments. They have since found work. However, because they did not contact their mortgagee about their financial difficulties, it served them with a Supreme Court Writ of Possession to take and sell their house.
Now that they have resumed work they can start making their normal payments. They have also applied to access their superannuation to pay out the three month arrears, however, they have been advised that this will take at least 4 weeks to come through by which time their mortgagee would be able to obtain judgment against them under the Writ and sell their home.
Scott and Maria immediately contacted their mortgagee when they received the Writ and were told that it will continue to seek a court order against them but it won't sell the house on the basis that their superannuation is going to pay out the arrears. Scott and Maria were concerned about the mortgagee getting judgment against them so they quickly sought the advice of Consumer Action Law Centre who advised they were entitled to a hardship variation under the Consumer Credit Code and there was no need to access their superannuation.