Stop Your Home Being Repossessed

The combination of the highest relative property values in the world with the highest official interest rates naturally produce high home loan repayments.

Just how high and how painful is now becoming more than obvious. The recent round of record breaking bank profit announcements had a nasty sting in the tail, and that was the rise in home loan delinquencies and those falling behind in their repayments.

With more rate rises on the horizon and property values falling the situation is just going to get worse.

Mortgage stress is spreading across all cities, suburbs and demographic. It’s a very scary state of affairs.

If this is you, it is time to take action because this is not a time to be a forced seller. There are things you can do to stop the bank foreclosing.

If you can’t meet your mortgage repayments, don’t just pack up, toss your keys inside the house and walk away. You can do that in the US, but in Australia if the bank sells the house you are still responsible for any deficit between the sale price and the loan.

New figures out last week showed that in the US 28 per cent of homes with a mortgage were in negative equity. That is, 28 per cent of houses had a mortgage worth more than the value of the house.

Thankfully it’s not that bad here but there are concerns.

Talk to the bank as soon as you have trouble paying the mortgage about what they can do to help. The earlier you talk to the bank, the better the chance you have of fixing the situation.

The bank will normally be open to arranging a new payment plan to help you catch up on any missed mortgage payments. The payment plan can work in a number of ways.

Simply changing the date you pay the mortgage, for example to the same day your salary is paid, can help in ensuring mortgage payments are met. It’s much easier to pay the mortgage when your salary lands in the account than to make the payment half way through the month when you might have already burned through most of the money.

Another option is to extend the life of the loan. Changing the tenure of the loan to 25 or even 30 years will reduce your monthly payments. But be aware that this will also increase the cost over the life of the loan.

It’s also an idea to renegotiate the terms of the loan if you’re in strife. So think about reducing the repayment amount, or switching to an interest-only loan, at least for a short period of time.

If your financial situation has changed so dramatically you really are unable to service the mortgage, it might be wise to think about selling the property yourself before the bank reaches the point of foreclosure.

We know there is a lot of emotion in the decision but selling

a house is all about price and whether that price realistically

reflects the market. So many vendors live in hope or fairyland.

Face facts. No matter what anyone says, the facts are the residential property markets in Sydney, Melbourne and the rest of Australia have fallen in value. Don’t think you can get the same price today as you would have received 2 years ago.

Look at the auctions results over the last couple months for similar standard properties in your area and take advice from local agents. Don’t forget to take in to account the condition of the property as well. Buyers in a soft market will still appreciate a nice renovated kitchen but make sure it’s done well.

Put on an over inflated price and it will take a lot longer to sell and potential buyers will be even more suspicious about what’s wrong with it.

Buyers are smart and in the end you’ll be beaten down to its correct market value, so avoid all the heartache and get the pricing right to start with.

Above all, don’t stick your head in the sand and ignore what’s going on around you. It’s human nature to end up in a state of denial when things are not going well, but this is the worst possible reaction. Instead, get proper financial advice and maintain an open line of communication with your bankers. That way, you give yourself options and maintain some sense of control.

Comments

0 #3 2011-05-27 22:04

Australians have an abysmal track record in the real estate market. Germans have a better model that operates fairly and equally, and is the envy of most Europe but the politicians there still have to foot the bill for banking bailouts. The moral is nobody wins from crazy home price inflation, and many first home buyers are locked out of the market so something has to give, and soon.

Kevin Anderson
Australian Property Monitor Forum

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0 #2 2011-05-18 17:55

Kochie, great advice to take action early. Moving to a lower interest rate, taking on a boarder, renting out a room, increase the length of the loan, taking a weekend job are all options to consider.
Roger Perrett
Manage My Apartment

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0 #1 2011-05-16 13:44

Hi K
The other tthing People can Do If Its A Temporary Financial Hiccup Eg Illness Is Use The Super. Remember The House is One Of Your Best Investments To Downsize When The Kids Have Moved On. U Can Sell It Later Move Into Somethimnfg Smaller And Have The Grandkids Visit and spoil them..Reinvesting any left over money from the salr of the bigger family home.