Your rights and choices in this common and complicated financial arrangement, and what to do if things go wrong.

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.


Making decisions

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


Repayment problems

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.

Payment problems

Mortgagee sales

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. 

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.

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.

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.

If your house sells for less than the amount you owe, you must pay the difference. The lender might agree to a repayment programme, or they could take recovery action, eg debt collection, applying to make you bankrupt.

Bankruptcy and insolvency

Debt collection and repossession

A free financial mentor can help you. Start by contacting the free helpline MoneyTalks.

Contact information(external external link) (external external link) — MoneyTalks

Example — Letter of demand

Hannah gets made redundant and is out of work for three months. She falls behind on her mortgage payments. Hannah is embarrassed by her work situation and doesn't talk to the bank about a hardship application. Hannah receives a letter of demand and realises how serious the issue is.

Hannah calls her bank and explains the situation. She can't apply for hardship as she has missed too many payments. But the bank agrees to let her repay the missed payments over the next few months, as long as she keeps up her regular mortgage payments.

If things go wrong with your lender

If you are having problems with your lender or mortgage broker — unexpected fees, misleading information on interest rates, or you're struggling to keep up with repayments — and think you should not have been given the mortgage, follow these steps. You might not need to do all three:

  1. Contact the lender/mortgage broker: Do this as soon as possible. Many issues can be solved at this step.
  2. Contact the lender/broker's dispute resolution scheme: Get independent help to solve problems if you and the lender/broker can't agree.
  3. Report the lender to the Commerce Commission: This government agency gathers information to identify lenders who break the rules. It doesn't take on individual cases, but acts against lenders who often break the rules.

At any stage of this process, a free financial mentor can help you contact the lender, or talk to the lender for you. Start by contacting the free helpline MoneyTalks.

Contact information(external link) — MoneyTalks

1. Contact the lender/mortgage broker

Before you make contact, read our information on:

  • your rights
  • common problems
  • how to complain.

  • Check your credit contract — this should list all fees, and explain when you might have to pay these costs.
  • Gather proof, eg if fee amount is more than what's listed in your contract or on their website, differences between your lender's fees and most others.
  • Think about what you will say, making notes with points you want to cover.
  • Decide your ideal outcome, egreduce or cancel the fee.

During the conversation:

  • Take notes — include dates and what was said. If you need to take your complaint to the dispute resolution scheme, this will be helpful proof.
  • Stick to the facts — explain the problem and share any proof.
  • Say what you want — explain your ideal outcome.
  • Take time out — if it gets heated, or you want to think about their response, arrange a time to call or email back. Explain you need time to digest the conversation.
  • Make it official — if you reach an agreement to reduce or waive (cancel) a fee, get it in writing. It's a good idea to get your contract updated.

Your rights

As a buyer and home-owner, you have rights lenders and mortgage brokers must respect.

Lenders must:

  • Follow lender responsibility principles in the Credit Contracts and Consumer Finance Act (CCCFA), guided by the Responsible Lending Code.
  • Check the loan is suitable for you, eg ask about the amount you need, if you want to be able to pay off lump sums, any extra products you might want.
  • Check you can afford it, eg ask about your day-to-day expenses like travel and food.
  • Help you understand the mortgage, eg provide key information in writing like repayment amounts and how interest is calculated.
  • Make sure the mortgage is not oppressive, eg the lender's behaviour and the mortgage contract itself cannot be extremely unfair or unreasonable.

What you can expect from your lender(external link) — Commerce Commission

Mortgage brokers must:

  • Follow the rules set by the Financial Advisers Act.
  • Act with care and skill.
  • Only provide financial services they are registered for and you asked for.
  • Give you key information about your home loan.
  • Not mislead or deceive you.

Other laws

Lenders and mortgage brokers must follow the:

  • Fair Trading Act: They must not mislead you, including in adverts or in contract terms (rules of the document you signed), eg your lender advertised an interest rate of 4%, but when your mortgage starts a 6% interest is charged.
  • Consumer Guarantees Act: They must not provide sub-standard services, eg they need to use a reasonable level of care and skill, and complete your work in a timely way.

Fair Trading Act

Consumer Guarantees Act

You must:

  • Give accurate and complete information: If you give false information and later get into trouble with your mortgage, the lender may not be held responsible.

Credit Contracts and Consumer Finance Act

No one has a right to a loan. But you do have a right for your application to be looked at thoroughly before it's approved or declined.

Your rights with common problems

If you end a fixed-term mortgage early, eg by repaying in full, or shifting to another bank before the term ends, you might be charged extra on top of an administration fee.

You have the right to break a fixed-term mortgage, but your lender also has the right to charge a fee to recover their costs or losses, as long as it is written in your mortgage contract.

If market interest rates have fallen since you took the mortgage out, the bank loses money. This is because it cannot lend the money out at the same rate as when it lent to you. If the interest rate is higher than when you started the mortgage, the lender cannot charge you a break fee.

Lenders cannot profit from break fees. They must be calculated to cover costs and losses of you breaking your mortgage early. The fee is decided using a complicated calculation. Contact your lender to find out how much before you break the fixed term.

If you think the break fee has been calculated incorrectly, first complain to the lender. If you and the lender cannot agree, complain to their disputes resolution scheme.

Early repayment charges(external external link) (external external link) — Banking Ombudsman

Many banks offer incentives for customers to take out a mortgage, eg cash or holidays. If you take an incentive, there is often a time frame where you cannot leave the bank, eg three years. If you do leave the bank in this time, the bank can ask you to return or pay back the incentive.

The bank has the right to ask for the incentive back as long as it's written in your contract.

No one has a right to a mortgage or loan, but you do have a right to have the lender assess your mortgage application fairly. Lenders must look at all relevant information to decide if someone is able to afford the loan before they give one, eg make repayments without getting into difficulty.

They need to look at income, credit rating and expenses as well as any other debts. If they think someone is unsuitable for a mortgage, they are allowed to reject them for a loan. If you believe a lender made an error when assessing your loan, you can ask for your application to be looked at again.

If the lender followed its own administration systems and assessed your loan fairly, a disputes resolution scheme cannot force them to give you a mortgage.

Lenders must find out if the person applying for the mortgage can afford to make repayments, eg make repayments without putting themselves into financial difficulty. If not, the lender should not give the person the mortgage.

If you think your mortgage should have been declined, you can complain to the lender and then to a disputes resolution scheme. In both cases, they investigate by looking at:

  • Information the lender asked for and was given.
  • If the lender should have asked for more information — was there something in your records the lender should have followed up on, eg large outgoings in your bank account you didn't explain?
  • If the lender followed its normal policies, eg requiring a 10% deposit but in this case dropped it to 5%.

Concerns about lending decisions(external external link) (external external link) — Banking Ombudsman

Example — Break fees

Salesi and Lulu take out a fixed-term mortgage. The bank warns them about early repayment charges if they break their fixed term. A few months later, interest rates drop and another bank is offering much lower rates. Salesi and Lulu decide to switch banks. Their original bank charges a break fee of $7,000. They think this is unfairly large and complain to the bank. The bank shows them how they came to the amount of the charge and reminds them of the fee in their contract. Salesi and Lulu pay the fee.

2. Contact lender's dispute resolution scheme

All banks, lenders and financial advisers must belong to a financial dispute resolution scheme. This independent body can:

  • give you information about how lenders should act
  • share tips on how to complain to your lender
  • look into certain complaints when you and your lender cannot agree on a solution.

It's free for you talk to them and make a complaint. Or a free financial mentor can do this for you. Start by contacting the MoneyTalks helpline.

Free confidential advice(external link) — MoneyTalks

There are four financial dispute resolution schemes. To find out which your lender belongs to, you can either:

  • Ask your lender.
  • Phone any one of the four schemes to find out. For contact details, see:

Financial dispute resolution schemes

You can also check the lender's entry on the Financial Service Providers Register:

Search the register(external link) — Financial Service Providers Register

Possible outcomes

Disputes resolution schemes can only consider complaints up to a certain amount. Check with your lender's scheme to see their limits.

If the scheme investigates your complaint, it might recommend the lender:

  • apologise
  • refund some fees or interest
  • agree a new repayment plan, eg restructure your loan
  • switch to a more appropriate interest rate.

Example — Irresponsible lending

David and Sarah have four kids. They apply for a mortgage. The bank gives them more money than they initially asked for. It asks for income information but doesn't ask about family life, how many kids they have, or weekly expenses. A few months later, between day care costs, buying school uniforms, groceries and rates, David and Sarah are struggling to meet their repayments.

A financial mentor looks at their budget and says they should never have been given a mortgage of this size. The bank refuses to re-look at the figures. The financial mentor helps them file a complaint with the disputes resolution scheme. The scheme agrees with the financial mentor and arranges for the bank to restructure the loan with a repayment scheme David and Sarah can afford.

3. Report the lender

The Commerce Commission enforces certain consumer laws, including the Credit Contracts and Consumer Finance Act. This is designed to make sure businesses lend responsibly, eg to check loans are affordable and disclose all interest and fees.

Commerce Commission doesn't act on behalf of individuals and can't investigate every complaint. But their investigations do help make sure businesses comply with the law. Your information helps them assess which consumer issues cause greatest harm.

Make a complaint(external link) — Commerce Commission


More help

Get support at any point from:

  • Community Law Centre: Free one-on-one legal advice for people with limited finances. The organisation has 24 centres throughout the country. You can find legal information and other resources on its website.

Our law centres(external link) — Community Law Centres

  • MoneyTalks: This helpline gives free budgeting advice to individuals, family and whānau. Financial mentors can help you understand your financial situation, organise your debt and plan for the future. They can also put you in touch with a local budgeting service and help with issues you're having with lenders. Phone 0800 345 123, or use live chat, email or text, if you prefer.

Contact information(external link) — MoneyTalks