Can mortgage arrears affect my credit rating?

With the introduction of the Comprehensive Credit Reporting (CCR) laws, lenders are required to report borrowers’ repayment history if the borrower fails to make a repayment within the grace period of 14 days after the due date. Although CCR laws came into force in 2014, lenders could decide how much data they wanted to share with the credit reporting bureaus until 2018. 

If you miss a repayment and the lender has reported it to the credit bureau, it can continue to show up on your credit history for up to 2 years. Luckily, if you make the payment just after the lender reported the mortgage arrear, the repayment will also get listed on your credit report. So anyone accessing your credit history can see that you missed the repayment but caught up with it later. 

That being said, a single missed repayment is unlikely to impact your credit score as much as defaulting on the loan altogether. Consider finding out about the lender’s procedure for declaring a default and how this can be avoided. 

On the other hand, if you’re facing financial difficulties and unable to make the repayment. You should discuss your situation with your lender well before the due date and not wait until you receive a notice. Doing this may prevent the lender from having to report a missed payment to the credit reporting agencies.

The Australian CCR laws make it mandatory for lenders to report a mortgage arrear. Lenders can do this without informing you, the borrower unless they’re processing a request for financial assistance. 

If there is a request for financial assistance pending, they may wait until they’ve made a decision on this application before reporting the arrear. If you’ve made a similar request in the last 4 months, the lender may not grant any further relief. Therefore, a mortgage arrear will be reported. If you’ve missed multiple repayments, the lender could issue a default notice on the loan. 

One option that your lender may offer you is a mortgage holiday, or hardship support, to help you get on top of your finances. Other options lenders may offer you to help ease your financial burden include switching to interest-only repayments for a period. However, remember that opting for interest only in the short term could mean a shock when the repayments increase to principal and interest. 

This option could just be deferring the financial pain, but so can deferring repayments with a mortgage holiday. You could also consider refinancing your loan to a lower interest rate. However, refinancing may not be easy if you’re already in arrears on your mortgage. 

Missing mortgage repayments can often indicate your inability to manage your expenses on your current income. Speaking to a financial advisor may help you discover ways of handling debt more comfortably, such as consolidating multiple loans into your mortgage or identifying other income sources.