June 7, 2011
Skipping a mortgage repayment is becoming more common among Australian households, according to new research from Fitch Ratings.
The number of homes that missed a monthly home loan repayment set a new record high in the March quarter, up 42 basis points to 1.79 percent. The number of borrowers that skipped two months of repayments increased by 10 basis points to 0.34 percent.
Many borrowers may be aware of the heavy penalty incurred as a result of skipping a repayment but not of the other consequences, which may include damage to their credit file.
RateCity consumer advocate Michelle Hutchison says missing a mortgage repayment could cost borrowers more than they may realise.
“It’s no surprise that more borrowers are struggling to meet their repayments in the first quarter of the year following substantial interest rate increases by most lenders in November and December and a string of natural disasters, which left many Australians struggling financially,” Hutchison says.
“But missing a mortgage repayment could cost more than a penalty fee. Our data shows that the fee for missing a repayment – or mortgage arrears administration fee – is $34 on average and some lenders charge up to $195 each missed payment.
“For two months of missed payments you could have been charged almost $400 as well as adding two more months of repayments and interest to your loan term.”
Be hit with more than a hefty bill
But heavy fees are not the only concern. Missing a mortgage repayment by more than 60 days is likely to be recorded on your credit file, Hutchison says.
“This may cause a problem when you want to take out a loan or credit card in the future,” she says.
Borrowers are being urged to keep a close eye on their spending and reassess their budgets if they are in a position to miss a payment.
“Borrowers who miss a repayment have either overspent on their accounts without noticing and their automatic payment to their mortgage has bounced, or they received less income,” Hutchison says.
“Either way there are many borrowers out there who are not keeping track of their bank balance and not budgeting their spending.
“Most transaction accounts have free access to online banking and balance enquiries can also be done through ATMs so there’s no reason to lose track of your balance.”
If you have missed a repayment due to insufficient funds, contact your lender and arrange to have your repayments dates adjusted. Or speak to them about financial hardship options if you know you can’t afford your next repayment, because they may have a number of ways to help you avoid penalty.
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