Aaron Bell
Athena Cocoves
If you are in mortgage arrears, you have fallen behind on your repayments. Understanding what the term ‘mortgage arrears’ means and which steps to take should you receive an arrears notice is essential.
» MORE: 10 questions to ask your mortgage lender
What does ‘mortgage arrears’ mean?
In simple terms, ‘mortgage arrears’ refers to any home loan repayments that are late, missed or overdue.
When you take out a mortgage, you sign a contract agreeing to a regular repayment schedule, usually fortnightly or monthly. When you miss a scheduled repayment, your lender will notify you that they have not received it.
If your monthly repayment continues to remain outstanding, your lender will classify you as being in mortgage arrears. They will notify you that you are in arrears and may use terminology such as ‘30 days past due’ or ‘90 days past due’.
You will be issued a notice of default if you continue missing repayments. The time between your first missed repayment and a notice of default can vary depending on your lender and contract. That said, 90 days is often a threshold for lenders.
Once you receive a default notice, you have 30 days to pay your outstanding repayments before the lender commences legal action.
» MORE: Mortgage glossary and home loan terminology
What happens when your mortgage falls into arrears?
Your lender will contact you once you fall into mortgage arrears. If you simply forgot to make a payment, you’ll usually have a short window to resolve it without incurring a penalty.
If you work with your lender
If you cannot pay, communicate with your lender as soon as possible. Discuss how your financial situation has changed, as you may qualify for a financial hardship arrangement.
If you are eligible, you can work with your lender to find a repayment solution — such as a reduced amount due, a pause in payments, or a temporary switch to interest-only repayments — until things get back on track.
If you don’t work with your lender
If you do not communicate with your lender and continue to miss repayments, you will be issued a notice of default, giving you 30 days to repay the money you owe.
If you do not resolve this debt, they can issue you a Statement of Claims or summons, which is the beginning of legal action against you to claim the whole loan amount.
In a worst-case scenario, these steps may lead to eviction and the repossession of your property by the lender.
» MORE: What happens if you can’t pay your mortgage?
Rates of mortgage arrears in Australia
Over recent years, less than 1% of mortgage holders in Australia have been in arrears. However, there was an increase in 2023, primarily attributed to interest rate rises.
Among the Big Four Banks, Westpac witnessed a rise to 1.7% of mortgage holders in 30+ day arrears, while those in 90+ day arrears reached 0.94% at the end of 2023. This trend was also consistent across CBA and NAB when both reported increases in mortgage arrears for the December 2023 quarter.
Arrears rates do not vary much geographically and are similar across rural and urban areas (with a few exceptions), according to data from the National Debt Helpline. Some regions of the Northern Territory, such as far north Queensland and Tasmania, have higher arrears rates.
What causes mortgage arrears?
Mortgage stress often leads to arrears, and there are countless reasons why a mortgagee may have difficulties managing their mortgage. Here are some common factors.
Personal and financial changes
Throughout a 20- 30-year mortgage, your personal and financial situations will almost certainly transform in one way or another — for better or worse. Personal developments that could impact your ability to manage debt could be due to job loss, changes in your relationship status, growing a family, shifting life and financial goals, or many other reasons.
Medical needs or injury
It’s also possible to fall into arrears if you cannot work because of injury or sickness. It may be impossible to anticipate, and medical bills can be expensive. The costs could make you unable to service your mortgage.
Interest rate rises
The RBA has raised the cash rate consistently in recent years. Interest rate rises mean most mortgage holders with variable interest rates have experienced increases in their repayments.
These increases, in turn, have made it difficult for some to keep up, causing them to miss repayments altogether and fall into arrears.
🤓 Nerdy Tip
You can help mitigate the shock of a potential rate increase in the future by calculating how much you can afford to pay back if interest rates rise. Learn how to calculate different repayment scenarios based on your financial goals.
Steps to take if you’re in arrears
If you are in mortgage arrears, the first thing you need to do is contact your lender. It’s essential to be transparent about your situation. You’ll also want to know how many repayments you have missed and ask to understand any late fees charged.
Every lender has a hardship officer to help you navigate your repayments and help find a solution to get you back on track. This may include:
- pausing repayments
- reducing repayments
- switching to interest-only repayments
- extending the loan term.
Other options
Refinancing
You may be able to refinance to a new home loan with another lender. Though, this can be difficult as your credit rating may have already taken a hit.
It’s also worth noting that, even if you can get approved for a new loan, it may not be a better deal than you already have. In that case, carefully consider whether refinancing makes sense.
Selling
You may also consider selling your property to repay your debt. Depending on the market, there’s a possibility that this could mean coming out with profit to spare — rather than falling further behind.
Seek help
There are organisations and resources available to assist you in navigating this difficult time. For advice, support and counselling, you can contact the services below, all of which offer free advice to those experiencing mortgage arrears:
- MoneySmart website: offers legal and financial counselling to help you understand your options.
- National Debt Helpline: provides consultations with financial advisors.
- WayForward: a free service for those experiencing financial hardship.
- BeyondBlue: a free service offering mental health support.
» MORE: What is financial counselling?
About the Author
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