What you need to know
If you are falling behind on home loan repayments or are worried that you will not be able to make repayments in the near future, it is important that you know your legal rights and act quickly. An understanding of your right to negotiate with your lender may avoid a situation where your lender repossesses and sells your home.
You may approach your lender on grounds of hardship if you are not able to meet the terms of your mortgage for a reasonable cause, but would be able to meet them if the contract was varied. You can apply to the credit provider on the grounds of illness, unemployment or other reasonable cause, such as a general deterioration in your financial situation or a short term of imprisonment.
The best way to make an application for hardship is to write a letter to your lender. You must consider how and why your circumstances have changed, when you expect your circumstances to improve and what variations you are seeking. You must also show that you will be able to meet the repayments if the mortgage is varied.
What types of changes can you request?
You can request the following types of changes:
extension of the contract term and reduction of each payment due with no change in the annual percentage rate;
postponement of payment due dates for a specified period with no change in the annual percentage rate; or
extension of the contract term and postponement of payment due dates for a specified period, with no change in the annual percentage rate.
Is the lender required to respond?
If you make a hardship application, the lender must respond to you within 21 days from receipt of your application. The lender must set out whether or not they agree to the variation and, if they reject the application, provide details of their external dispute resolution scheme and your rights under that scheme, and the reasons for not agreeing to the change. The external dispute resolution service will likely be either the Financial Ombudsman Service or the Credit & Investments Ombudsman.
What if the hardship rules don’t apply to you?
Your ability to apply for a hardship application is dependent upon the amount of your mortgage and when your mortgage was entered into. If your mortgage was entered into on or after 1 March 2013, the circumstances in which you can request a hardship variation are very broad and there is no limit on the amount of the mortgage.
If the hardship provisions do not apply to you and your lender is a bank that subscribed to the Code of Banking Practice 2013, your bank is required to work with you if you are experiencing financial difficulties to assist you overcome such difficulties, whether or not you have a right to seek a hardship variation.
About the author
Peter’s areas of expertise are probate law and litigation, commercial litigation, and employment law. He is a member of the Elder Law and Succession Planning Committee of the Law Society of Western Australia, and is a full member of the Society of Trust and Estate Practitioners..