Asking for a hardship variation - Mortgage stress
When you apply for a hardship variation, you can ask for any change that will make your loan repayments more affordable, or give you time to sell your house if you have decided you cannot keep up the mortgage.
For example, you could ask the lender to:
- extend your loan period, so you make smaller repayments over a longer period
- postpone your repayments for an agreed period, or
- do both of those things.
You should keep making whatever payments you can while you are waiting for a response to your application for a hardship variation.
Step 1: Working out what to offer
Before you do anything, you need to work out what you want to offer as a repayment arrangement. Be realistic. The repayment you offer must be affordable. You must be able to make the new repayment each month.
Do not offer to make repayments you cannot afford.
To work out how much you can afford to put towards mortgage repayments, it is a good idea to make a budget. As a guide, the repayment you offer should not be more than 50 – 60% of your income. You need to make sure you have enough income left for basic needs such as food.
It may help to speak to a free financial counsellor to work out what you can realistically afford to repay and help you apply for a hardship variation or negotiate with your lender. You can also get more information about creating a budget from the MoneySmart website.
What if I can't afford to make any repayments?
If you cannot afford to make any repayments, then you will need to ask the lender to let you postpone or suspend repayments for a period of time
There are serious disadvantages to making no repayments at all:
- Your lender is less likely to consider further requests for hardship variations if you have not been making any repayments.
- Your debt will grow very fast, as you will still be charged interest on the loan amount.
- You will get out of the habit of budgeting and making regular repayments.
Step 2: Plan to return to usual payments
You need to give the lender a plan on how you will return to making the usual repayments.
If your financial hardship is because of illness or unemployment, you may not know exactly when you will be able to return to making the usual repayments. In these situations, you need to estimate how long you will need and ask for more time, if required.
But if there is no clear plan for how or when you will be able to return to your normal repayments in the future, then you may need to consider selling your home.