Problems Paying Your Mortgage — Options and Help

Act Early — Don't Ignore the Problem

If you are having trouble making your mortgage repayments, the worst thing you can do is ignore it. The earlier you contact your lender, the more options are available to you. Banks are required to have a financial hardship process under the National Consumer Credit Protection Act. If you are facing financial difficulty due to illness, job loss, relationship breakdown, or other circumstances, you have legal rights to request a variation to your loan.

Your Lender's Hardship Obligations

Under Australian law, if you notify your lender that you are experiencing financial hardship, they must consider your request for a loan variation within a reasonable time (usually 21 days). Options may include a temporary repayment pause (repayment holiday), switching to interest-only payments for a period, extending the loan term to reduce repayments, or capitalising arrears into the loan balance. The lender cannot charge you default fees or take enforcement action while a hardship application is being assessed.

Government and Community Support

Free financial counselling is available through the National Debt Helpline (1800 007 007). Financial counsellors can help you negotiate with your lender, work out a budget, and explore your options. You may also be eligible for government payments like JobSeeker or the COVID-related disaster payments if applicable. The National Rental Affordability Scheme and state-based housing support may also help if you need to downsize or relocate.

Refinancing and Selling

If your situation is unlikely to improve in the short term, selling the property may be the best option. Selling voluntarily is almost always better than waiting for the bank to repossess. You can also explore refinancing with a different lender, but this is harder if you are already behind on repayments. Speak to a mortgage broker about your options. Some lenders offer low-doc or specialist loans for borrowers with impaired credit histories.

What Your SOA Should Address

If your financial adviser recommended a mortgage as part of your financial plan, the SOA should have addressed the risks — including the impact of rising interest rates, job loss, or illness on your ability to repay. If the MOA did not consider these scenarios, this may be a gap in the advice. An independent compliance check can help identify these gaps.

What to Do When You Cannot Pay Your Mortgage

Falling behind on mortgage payments is stressful, but taking action early gives you the best chance of reaching a positive outcome. The most important step is to contact your lender as soon as you realise you will have difficulty making payments. Lenders are required by law to consider hardship applications and offer reasonable assistance to borrowers experiencing genuine financial difficulty.

Before contacting your lender, prepare a clear picture of your financial situation: your current income and expenses, the amount of the shortfall, the reasons for the difficulty (job loss, illness, separation, etc.), and how long you expect the difficulty to last. This information will help your lender assess what assistance options are appropriate for your situation.

Hardship Options Available to You

The National Consumer Credit Protection Act requires lenders to consider hardship variations when you apply. Options your lender may offer include: a temporary payment deferral (pause payments for 3-6 months), an interest-only period (reduce payments by stopping principal repayment), extending the loan term (lower payments over a longer period), restructuring the loan (e.g., consolidating debts), or capitalising arrears (adding missed payments to the loan balance).

The lender cannot charge you fees for considering a hardship application, and you cannot be evicted or have your property repossessed while a hardship application is being assessed. If the lender refuses your hardship application, they must provide reasons in writing and inform you of your right to lodge a complaint with AFCA.

Free Help and Support Services

If you are struggling with mortgage payments, free financial counselling is available through the National Debt Helpline (1800 007 007). Financial counsellors provide confidential, independent advice about your options, including negotiating with lenders, managing debt, and accessing government assistance.

Other resources include: the Moneysmart website (debt and borrowing section), your state or territory community legal centre (for free legal advice about mortgage stress), and the Services Australia Financial Information Service. Do not use "debt management" companies that charge upfront fees — free counsellors can provide the same services at no cost.

Frequently Asked Questions

Can my lender repossess my home if I miss payments?
Yes, but only after a legal process. The lender must first issue a default notice giving you 30 days to remedy the breach. If you do not, they can apply to the court for possession. The court process provides several opportunities to negotiate.

What is a hardship variation?
A hardship variation is a change to your loan terms because of financial difficulty. It can include reduced payments, a payment pause, or an extended loan term. The lender must consider your application within 21 days and cannot charge fees for processing it.

Does mortgage stress affect my credit score?
Yes. Missed payments and defaults are recorded on your credit report and can affect your credit score for up to 5 years (for missed payments) or 7 years (for defaults). However, negotiating a hardship variation is better than simply stopping payments.

Can I sell my home if I cannot afford the mortgage?
Yes, selling your home voluntarily is often better than waiting for the lender to repossess. A voluntary sale typically achieves a higher price than a repossession sale, and you avoid the legal costs of repossession.