Many Australians are facing tough times with the rising cost of living as well as continuing uncertainty about their job security. This has resulted in a high number of home loan defaults, especially among people with first mortgages on investment properties. In such difficult times, banks and other financial institutions have to think carefully before foreclosing on an owner-occupier property because this is damaging for both parties involved: the borrower and the bank.
However, if banks are persistent or they believe that there is a risk of non-repayment even after forbearance measures have been taken into consideration, then foreclosure proceedings will be initiated by the lender. Foreclosure can be applied only by way of legal proceedings called “proceedings of mortgage & sale”.
In the case of mortgages on investment properties, however, it is not unusual for foreclosure proceedings to be targeted at both owner-occupied homes and investment properties. Banks are becoming increasingly more lenient with their forbearance practices, but as a borrower, you need to proactively manage your loans by contacting your lender immediately if you have financial problems.
There are several options available to borrowers in difficulty including:
1) Interest Only Option
Under this option, the borrower can lower his/her level of monthly repayments by either extending the loan term or choosing interest-only for a period of time. This will enable the borrower to budget better during difficult times while at the same time avoid defaulting during tight economic periods. However, using this option means that the borrower has to repay the principal amount at a later stage.
2) Additional Interest Loan Option
This option allows the borrower to borrow an additional loan, but with a lower interest rate than that of his/her existing loan.
3) Bridging Loan
This is a short-term loan that is less risky for banks as it only covers the time to refinance your home loan. The interest rate charged on this type of loan tends to be higher than that of standard home loans. A bridging loan can also bridge a financing gap between settlement and completion of another property purchase.
4) Cashback Option
Under this option, the borrower receives a cash sum from the lender in addition to his/her standard home loan repayments if he/she agrees not to spend any money out of his/her wages with respect to household expenses or investments. It should be noted that you can only have this benefit for a maximum of six months.
5) Interest Rate Reduction Option
Generally speaking, banks that offer variable rate home loans have the option to reduce your interest rate if you are experiencing difficulties in repaying your loan or if you request it. This is quite a risky option as what’s guaranteed is that you will pay less but not necessarily that you will be able to pay off your loan before defaulting.
The home loan industry has seen a boom in the last decade or so. The home-loan market is growing at 4% annually, driven by strong housing demand and increasing home prices across all capital cities.
As such, it is important that you keep yourself updated with current financial trends as well as compare home loan products before deciding on the best home loan deal that matches your specific needs and requirements.
Therefore, home loans that are provided by home loan brokers could be your key to options like refinancing home loans.