There are many reasons to refinance a home loan. They may include switching to a lower interest rate, consolidating multiple debts into a single loan, leveraging the equity in your home, or accessing flexible payment terms. Refinancing might also be a viable solution to help you manage your mortgage if you fall behind on your repayments. Lenders will decide if they’ll allow your loan to be refinanced under these circumstances on a case-to-case basis. However, there are other steps you could take before refinancing a mortgage in arrears, such as reassessing your overall finances and speaking to your current lender.
What happens if I am late with my mortgage repayments?
If you’ve missed a mortgage repayment, you’d typically receive a late payment notice from your lender. At this point, you can either make the payment or contact your lender to seek financial help before things get worse. If you don’t act in time, usually around 30 days, you may receive a default notice from your lender. Following this notice, you’ll likely receive a notice of foreclosure or eviction notice and risk losing your home altogether.
To avoid this process from happening, it’s usually a good idea to contact your lender as soon as you fall behind on your repayments. This allows you to take the necessary steps to get your finances on track before risking your home. Depending on your circumstances, your lender may allow you to extend your loan term, which can reduce your monthly repayments. Another option that may be presented to you is a repayment holiday if you’ve never missed a payment before. This allows you to take a break from repayments which could help ease the financial pressure and give you some time to get your finances in order.
Can I refinance with late mortgage payments?
If you’re facing mortgage stress, you may consider refinancing your home loan to manage the situation. Be careful, though, as refinancing your home loan to handle overall financial stress isn’t suitable for all people and may lead to further financial issues. Speak to a financial expert or a mortgage broker before deciding to refinance, as it could help you weigh your options better.
Here are some potential risks to be aware of before refinancing your home loan:
- Refinancing your home loan isn’t free. Besides the application fee for the new loan, you might end up paying discharge fees to get out of your existing loan, depending on the terms of your mortgage.
- If you refinance and increase your loan size, be careful not to exceed a loan to value ratio of 80 per cent. You may need to pay lenders mortgage insurance (LMI), adding thousands to your debt, if you do.
- When you refinance your home loan to a longer term, you remain in debt longer and often end up paying more interest over the life of the loan. However, the immediate reduction in your monthly repayment amount could help you manage your debts better.
Refinancing to a lower monthly payment or flexible repayment terms can help you manage your debt in the short term. However, if you find things spiralling out of control, consider speaking with a financial counsellor or applying for financial hardship assistance to get your finances under control. You may even think about downsizing to a cheaper home to reduce your debts.
While it’s possible to refinance with late mortgage payments, not every lender will accept your new mortgage application. Generally, it helps to speak with your current lender before looking for refinancing options with a new lender.
If you’re not satisfied with the alternatives shared by your lender, you may seek help from a mortgage broker. A broker will be able to suggest options that are best suited for your circumstances and offer advice. As many lenders tend to consider refinancing applications for home loans in arrears on a case-to-case basis, a mortgage broker can increase your chances of approval by explaining your situation in-depth to the lender. Brokers also often know which lenders or specialist lenders might be more emphatic about your circumstances.