A mortgage is the biggest financial arrangement many of us ever enter.
We are asked to make complicated decisions, which can have a big impact on our life, before we might fully understand how it works. From day one we are faced with choices and decisions:
- Lender or mortgage broker?
- Fixed or floating interest?
- Revolving credit or 30-year loan?
Even when everything is going smoothly, borrowing a large amount can feel stressful. If things start to go wrong, it can feel like a disaster.
Whether you're struggling to make repayments, receiving letters from the bank or you've got an issue with the lender itself, you have options and support.
Lender or mortgage broker
There are different options for how you find a mortgage:
Straight to a lender
This could be a bank or non-bank lender, eg building society, credit union. However, many non-bank lenders only deal with mortgage brokers.
You aren't limited to your day-to-day bank. Talk to a number of lenders about rates and offers before you decide.
Questions to ask a lender when getting a mortgage(external link) — Sorted
Through a mortgage broker
Mortgage brokers are a type of financial adviser. They don't lend money themselves, but deal with lenders on your behalf and can shop around for you.
Not all lenders work with brokers, so there may be options you aren't told about when using a broker. Most brokers are paid a commission by the lender, not by you.
Mortgage brokers must be registered as a financial advisor. Check the financial service providers register to make sure your broker is on it.
Financial Service Providers Register(external link) — Companies Office
When deciding who, ask the broker:
- if they charge any fees
- which mortgage providers they deal with (and which they don't)
- what commission they receive from different lenders.
For in-depth information on the pros and cons of going straight to the bank or through a mortgage broker, see the Sorted website.
Shopping for a mortgage(external link) — Sorted
Loan structures and interest rates
When taking out a mortgage you'll need to decide interest rates and the structure of the loan. These choices influence how long your mortgage will take to repay and how much you pay overall. For example if interest rates go down, switching to a different rate or term might mean paying break fees.
Interest rates, egfixed, floating or a combination of the two.
Mortgage structures, eg standard loans, revolving credit and offset loans.
Before you make these decisions, think about:
- your spending and saving habits
- your overall budget including other expenses
- what you can afford in repayments and whether this might change, eg switching from two incomes to one
- how long you want to pay your mortgage for.
Your lender or mortgage broker can talk through these options in more detail and assess which might suit you and your needs.
For in-depth information on mortgage types, as well as budgeting tools and mortgage calculators, see the Sorted website.
Mortgage types(external link) — Sorted
Talk to your lender as soon as you find it hard to pay on time. The earlier you talk to them, the more they can do to help. If you know your finances will change, eg your income will drop soon, talk to your lender before it happens.
You and your lender could discuss:
- A repayment programme: If you miss one or two payments, your lender can work with you to come up with a programme to pay back the debt.
- Hardship: If something unexpected happens and you can't keep up your repayments, eg illness, a relationship ending, job loss, you might be able to apply for hardship. This could change your repayment amounts or give you a repayment holiday.
If you don't try to get payments back on track, your lender might start the debt recovery process, which could lead to a mortgagee sale. This process is not quick. There are a number of steps before your lender sells your house.
Mortgagee sales(external link) — Banking Ombudsman
Whether you've already missed a payment or worry you might soon, try talking to your lender to find a solution.
Step one: Letter of demand
If you and your lender cannot agree to a solution, or if you continue to miss payments, you may get a letter of demand. This tells you how much you owe and a due date for payment.
Contact your lender straight away, what you say depends if:
- You can pay the full payment: Tell the lender you will pay by the due date.
- You cannot pay the full payment: Tell the lender the amount you could pay instead. You might still be able to come to an arrangement with the bank for the remaining amount.
- You can't afford to pay and can't agree on an alternative payment: Talk to a financial mentor about other options like switching your mortgage to another bank or selling the house yourself.
Step two: Property Law Act notice (PLA)
If you don't pay the full amount in the letter of demand, you might get a PLA notice.
The notice will tell you to pay a certain amount by a set date at least 20 working days after you receive it.
If you haven't tried talking to your lender about a plan to repay the money you owe, you can still do this now.
Step three: Mortgagee sale
If you don’t pay the amount specified in the PLA notice, your lender has the right to sell your home to recover the loan amount, interest and other costs, eg break fees on any fixed-rate loans.
They must work to get the best price for the house. This includes getting an independent valuation and hiring a real estate agent. The lender might bill you for these extra costs.