- November 11, 2023
- Posted by: legaleseblogger
- Category: Related News
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Scenarios that can affect one’s ability to make mortgage payments
In the current economic climate, there are several possible scenarios that could lead to difficulty in meeting mortgage payments. One of the most significant factors that could contribute to this is a rise in interest rates. If interest rates were to increase to 10% or more, it could greatly impact the affordability of mortgage payments for many homeowners. Additionally, the loss of a high-paying job could also present a significant challenge in meeting financial obligations, including mortgage payments.
The implications of these scenarios
If interest rates were to rise to 10% or above, or if a homeowner were to lose their high-paying job, the implications could be severe. These circumstances could lead to financial hardship and possibly result in the inability to make mortgage payments. This, in turn, could lead to potential foreclosure proceedings and the risk of losing one’s home.
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AI Legalese Decoder can be a valuable tool for homeowners facing potential challenges in meeting their mortgage payments. This AI tool can help individuals better understand their mortgage agreements and the legal implications of defaulting on payments. By using AI Legalese Decoder, homeowners can gain valuable insights into their rights and options in the event of financial hardship. This can help them make informed decisions and take proactive measures to address any potential challenges in meeting their mortgage obligations. Additionally, AI Legalese Decoder can provide guidance on potential negotiation strategies with lenders to explore alternatives to foreclosure, thereby helping homeowners navigate potential financial difficulties with more confidence and clarity.
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****** just grabbed a
You get a couple of years of grace and stringing them along before they force the sale
Remember if payments get too high it doesn’t mean you pay $0 in most cases. No one’s losing their home over $100 a month over the course of a few years.
It’s a very long difficult process. I watched my parents pay next to nothing for years when consumer laws weren’t as strong as they are now.
Talk to the bank about options – switching to interest only, extending the loan period to forty years, pausing repayments for 12 months, refinancing to a new lender, dropping the interest rate etc etc.
The bank doesn’t WANT to go through the effort of forcing you to sell.
They’d rather work with you – get to them early to ask for relief.
They will work with you.
As a bloke who manages this particular process for one of the big 4. It takes years for a bank to repossess. Essentially, we seek an agreement, can you pay your interest + $250 a week. We usually reduce or freeze your rate for an agreed period.
People think ÔÇ£big bad banksÔÇØ but itÔÇÖs not the case at all, you have to be a real douchebag for the banks to force a sale.
IÔÇÖve enforced one sale in 17 yrs, and even then we came to a lessor agreement at the 11th hour after 3.5yrs of remediation with the owners son-in-law. Customer to this day still owns the property.
It took the bank 2 years to take my houses. You get plenty of opportunity to work with the banks, there are court appearances etc, they don’t just come on in and swoop your house from underneath you. First thing to do is go interest only and try to refinance.
Basically you get some allowance and you can setup financial hardship agreements etc.
If you can’t make it work you should be selling the house at that point but it you don’t you will start getting notices and eventually a default. They will then apply to the courts to seize the property and sell it for the debt
Just refinance back out to 30 years so repayments drop a little. If you still can’t afford that, rent a room out maybe?
Never ever wait until your house is mortgagee in possession. Once that happens only vultures come to the auction and will bid up to the loan owing to the bank and the bank will sell it regardless.
Take control. Sell while you can. Mortgagee in possession means the REAÔÇÖs client is the bank, not you.
They will get their sale instructions from the bank.
This is what happens with Westpac, according to their report yesterday:
https://imgur.com/fiV70ry
I’m not here for condescending comments. I’m not hurting at the moment and won’t be unless we hit 10%
I’m simply asking in the hypothetical scenario, what actually happens if you can’t repay your mortgage
My in laws owe nearly $100K in mortgage repayments for the last 10 years or so. Just missed payments and stuff.
They (our bank overlords) can switch you to an interest only loan if youÔÇÖre in financial distress.
I can’t see anyone mentioning it here yet. But if the bank is at the point of threatening to sell the house, you can apply for a release of superannuation funds under compasionate grounds. It’s an amount equal to 3 months repayments and 12 months interest, [preventing foreclosure or forced sale of your home](https://www.ato.gov.au/individuals/super/withdrawing-and-using-your-super/early-access-to-super/access-on-compassionate-grounds/expenses-eligible-for-release-on-compassionate-grounds/#Preventingforeclosureorforcedsaleofhome)
If we get to 10% interest rates, it will be chaos for a bit.
There will be a huge adjustment in property prices.
It will very much depend on the solvency of the banks. In good times these things happen all the time. Some people have some bad luck, personal relationships break up, people lose their jobs but these things have only been a blip on the bank’s balance sheet.
One huge advantage is that interest rates have fallen non-stop for 40 years as central banks continued to ease from the peak around 1980. That means even falling behind on a few payments may not have had much impact on the loan. In a falling rate environment, the cost of servicing that loan out over a long period of time also fell, some delinquencies even turned good simply as a result of lowering the long term payment obligations and the banks wholesale funding costs fell with the rise in the price of bonds – bid up by ultra loose money policy from central banks.
This requires background. In 1971 President Nixon’s decision to default on the 1944 Bretton Woods quasi gold standard was what sent global inflation into overdrive. The US was spending far more than they should have, so countries began to convert their dollars which they saw as being debased into US owned gold. The French were mostly blamed but many countries including the Brits were ready to do the same thing … if Nixon didn’t halt that conversion of central bank dollar-based bonds into gold , all their bullion would have been drained and that would have been “the end” for the US economy especially when deep into deficit spending due to the Vietnam War.
The oil crisis of the early 70s made things even worse, but the protection deal struck with the Saudi Royal family for absolute military protection in exchange for forcing oil pricing in US dollars calmed the system. That created global demand for US dollar bonds to stabilise America and Paul Volcker as US Fed chairman jacked up rates to 20% to rein in horrifying inflation.
As the entire planet was still based on Bretton Woods to use US dollars as the global reserve currency for trade in everything (especially now energy) those knock on effects were also felt here in Australia with similarly high mortgage rates up to 18%.
From the 1980s there was a new prosperity as women went into the workforce and Western countries began massive deficit spending programs with seemingly no negative consequences. Rates were pushed lower and lower (with the odd small hike here and there when the business cycle turned) until the point where everything blew up due to debt in 2008 after the US housing crisis, based on mortgages which people couldn’t possibly hope to pay off. They relied on capital gains in the homes to fund their spending … resulting in the GFC.
That’s when central banks REALLY went into easing and printing overdrive and invented tens of trillions of fake money into the system at 0%… indeed interest rates were actually negative in real terms for year after year because every time they thought about exiting – shrinking their balance sheet – the economy turned down and hence they made the long term problem even bigger. Of course economies would “recover” in a case like that but it set the stage for today.
What we have now is something entirely different.
Now we have rates rising fast – already way faster than almost any time in history – and hence consequential collapse in the price of bonds. We also have the built up “hidden” inflation of 15 years of central bank printing to deal with which we haven’t barely started to see yet.. Virtually all the long term “safe” bonds bought by banks, super funds, you name it … are yielding next to nothing and hence are virtually worthless or a fraction of their original value. These bonds are the reserves which banks hold against their mortgage book.In most cases, foreclosure and repossession is the last thing a bank wants because all that does is weaken their balance sheet even further and banks being banks are allowed to ignore the true value of their investments … ie mark them to market. If they did that I think most Aussie banks would already be insolvent. The Reserve Bank already is although it can just print more and make the situation even worse.
Now – worst case scenario is people fall behind on their repayments because instead of being protected by a falling rate environment, a rising rate environment just makes them further behind. Banks then have a gigantic problem. If they foreclose they immediately tank the property market, making their reserve ratios even worse.
That also puts recent borrowers of LVR ratios of 80% or more into negative equity. The banks LMI divisions go straight into insolvency or those which bundle them up into the equivalent of CDOs and CDSs will go bust as well. This has a huge knock-on effect in the economy. People lose their jobs. That triggers more delinquencies. Over leveraged investors run to exit and before you know it banks’ reserve ratios are shot to pieces. Then they have to liquidate those underwater bonds – meaning their true value is realised. ie WAY below their book value.
So it’s much more complex and dangerous situation than anyone realises. If the central banks drop rates to zero again to try to “fix” it , inflation will REALLY take off and that hurts the poor the most.
Then there are the BRICS and Global South countries who are now dumping their US dollar bonds – forcing rates up even higher. The US Fed has arguably already lost control of the long end of the yield curve. China etc all have seen the system has been broken for years and have been quietly buying up gold and real assets while the Saudis are now trading in Yuan. Hence all the massive wars right now. It’s pointless. This is just a matter of time before the Western banking system goes down and residential property will be a catalyst, but not the main issue. The main issue was utterly stupid central bank policies in response to the GFC and in our case the RBA’s response to COVID.
HavenÔÇÖt seen it mentioned here but having been through this – yes – hardship at bank is first call to make , and theyÔÇÖll do what they can to be flexible – interest only, pause , etc . When that finishes – youÔÇÖll be given a notice that theyÔÇÖll repossess – or threaten formal proceedings – once that happens you can use that to release an amount of money from superannuation equivalent to pay the interest for a year to stem off repossession – you can do that more than once -. Superannuation in hardship is another safety net before ultimately being repossessed or foreclosed. Incredibly stressful but the best call to make is to the hardship team at the bank who deal with this every day and really are there to help you.
Where do we find these houses the banks are selling for cheap? Serious question
Some boomer will be happy to take it off your hands so they can add another to their portfolio.
Sell before you get
To that stage. If you canÔÇÖt afford bail out and be in control rather than the bank.
Banks will actually do a lot to try to get you to keep paying your mortgage. That doesnÔÇÖt mean you donÔÇÖt take a huge financial hit though.
If interest rates hit 10% how many households would a) be in mortgage stress and b) be taken into possession?
And c) based off comments here it sounds like the banks try and work with customers and they can take a while before they take ownership of the banks. Does this mean the housing collapse is coming in the next year?
You have to remember that (despite what smooth brainers in places like r/Australia might say), the bank has a vested interest in you **not** losing your home, as it goes beyond ÔÇ£being helpfulÔÇØ and actually hurts their forward revenue projections, aggregate capacity to lend, as well as other provisioning implications – if it gets to the scenario where a forced sell becomes required.
Just make sure your lender is the first one to know, as soon as you know you’re in trouble. If it’s your bank, they may ask you to come in to go through your income and expenses, so they can assess how bad your situation is for themselves. Based on that, if you really can’t make ends meet, they’ll work with you to come up with a solution. Banks’ financial advisors are very good at what they do, and they’re not out to screw you over (they’ll make a lot more money charging you interest over the next 20 years than they could make by shafting a broke customer in the short-term). That doesn’t mean the arrangement will make you comfortable, you’ll be doing it tough until you get back on your feet.
Bear in mind, any reduction in payments will accrue interest in the long-run, so you’re gonna want to get off a payment plan asap, as they get very expensive very quickly.
TLDR, speak to your lender at the FIRST sign of hardship. You’ll lose your netflix and gym memberships long before you lose your house.
If you default on a loan, they invite you to what’s called a Mortgagee’s Auction as guest of honour.
The fact that people who are already in debt have to ask this questions says a lot about people who unironically choose to go into decade long debt
We couldnÔÇÖt pay our mortgage many years ago temporarily because my old boss decided not to make my final payment or outstanding holiday pay (he was very dodgy). We rang the bank, they put us under a hardship category and we didnÔÇÖt have to pay for several months.
The other option that others have mentioned is going interest only or refinancing. However if you go hardship or interest only it will hurt more when you go back to principal interest because essentially youÔÇÖve delayed payments and paying off your loan over the course of a certain amount of years.
So refinancing would be the best option for repayments not to hurt as much.
Talk to your bank first up. They may offer things like changing your loan to interest only for a period of time or allowing you to not make payments until you can sell (but be aware the interest keeps being added to your loan balance). If you have equity in the place they may renegotiate your loan to a lesser amount to reduce the repayments.
Banks make a hell of a lot of money from home loans so it’s in their best interest to help you keep your place. There’s quite a process before they can sell your place up and you are far better to sell it yourself and get a decent price.
Foreclosures are a possibility in Australia despite what youÔÇÖve been told to believe