Mortgage Hardship Variations

Mortgage hardship variations

Mortgage hardship variations are structured to assist borrowers who are suffering temporary financial hardship brought on by forced unemployment, injury or illness. In order to deal with the fall out from the global financial crisis, the federal government has recently negotiated with the big four banks to make mortgage hardship variations more standard.

Applying for a mortgage hardship variation

As soon as you are aware that you will experience difficulty making your mortgage repayments, get your mortgage broker to contact your lender and organise a hardship variation on your behalf. This will usually be in the form of a hardship variation request letter which will include:

Your current loan details

Reason for hardship variation request e.g. job loss

Type of hardship variation e.g. postponing the repayments due between specific dates

Details of Income and Expenditure

Proof of ability to meet mortgage repayments once the hardship variation period expires

How do hardship variations work?

Hardship variations can be used to alter loan agreements in the following ways:

Temporary reduction of mortgage repayment amount

If you are currently facing financial hardship and cannot afford to meet your mortgage repayments, you can use a hardship variation to apply for a temporary reduction in your repayment amount. This is usually done by extending the length of your contract and thereby reducing the amount of each repayment. However, this does not alter your interest rate.

In submitting a hardship variation requesting a reduction in your mortgage repayment amount, you should ensure that you state the amount that you can afford to continue to pay.

Temporary suspension of mortgage repayments

This involves suspending your mortgage repayments; or taking mortgage repayment holiday; for a specified period of time. With this option the annual percentage rate will not change, which means that your interest charges will be capitalised to your loan balance and your overall loan term will also be extended.

Reduction and suspension of mortgage repayments

This involves combining both a reduction in mortgage repayments with a suspension of mortgage repayments. This method usually does not change the annual percentage rate that you will make.

More mortgage management options

Mortgage holders facing financial difficulty may also consider a range of options that include:

Any movement in the Reserve Bank interest rates will ultimately affect the repayments you make. A slight shift could mean that you save thousands and your ability to quickly act will aslo present greater opportunities. Call a mortgage broker and check your options or get some great tips now at how to manage rate rises at Interest Rate Rise Action Plan.

Consolidating your debts into one manageable loan can be a smart way to not only save you a lot of money but to also reduce the amount of personal finance paperwork you deal with on a monthly basis. You might have personal loans, car loans, credit cards and a mortgage. Usually these debts can be consolidated against your mortgage and of course work harder under your lower mortgage rate. Debt consolidation, however, does take a degree of discipline and finance management and while in the end, you are usually better off to consolidate your debts, you should evaluation the pros and cons found at Debt Consolidation.

Everyone who has a mortgage should check with their lender or mortgage broker every two years to ensure their mortgage is still the best available. Personal circumstances often change and the lending market is very competitive with new products are being developed all the time. Find out more about your refinancing options and how much it is likely to cost to change from one home loan to another at refinancing.