What happens if I default on a home loan?

What happens if I default on a home loan?

Many people, at some point in their lives, find it hard to repay their home loan. Luckily, there are steps you can take to make your own life easier during these difficult times.

Here is information that will help you understand what to do if you think you are going to default on your home loan.

What is a home loan default?

A loan default occurs when a borrower does not pay their home loan repayment on schedule. Technically, a loan is considered to be in ‘default’ one day after a repayment is due. However, a lender will generally start following up on a late payment when it is approximately 7 days overdue.

What happens if I default on my home loan?

During the US housing crisis (2007 to 2010), foreclosures increased and repossessions multiplied, which in turn, increased the amount of homes sold in a weak property market. This served as quite a shock to homeowners, who in some cases lost their homes to lenders who foreclosed on their loan. 

In Australia, lenders typically follow this process:

  • 7 to 30 days overdue – the borrower receives contact from the ‘collection’ department.
  • 30 to 60 days overdue – the bank issues a ‘notice of default’.
  • 60+ days overdue – a solicitor issues a S88 Notice, which gives the borrower 30 days to pay the overdue loan. Time is usually also give for postage, and generally, the S88 notice expires 6 weeks after the date it is issued.

What happens when the S88 Notice expires?

The solicitor issues a 6Q Notice, which gives the borrower 7 days to clear the loan balance in full. (Time is once again given for postage.)

After this point, time frames will depend on which state of Australia governs the lender and the borrower’s transaction.

If a loan is not paid after this point, it usually takes around 6 months for the lender to gain possession of a property via eviction. But this is certainly just an estimation, as each lender and state may have different time frames.

What can I do if I think I am going to default?

If you know that you’re unlikely to make an upcoming mortgage repayment, contact your lender as soon as possible. Tell them about your financial situation and seek advice about the best way forward.

We also recommend contacting a financial counsellor and getting support with improving your financial situation.

Will my lender assist me?

In response, your lender may be able to make repaying the loan easier by changing your borrowing arrangement. This is likely to happen in 3 ways:

  • Extending the term of the loan and reducing repayments.
  • Extending the term of the loan and delaying repayments.
  • Delaying repayments and allowing for payments in arrears to be paid at a later day.

Contact us

For assistance with securing a home loan that matches your budget and financial goals, please contact a Capita mortgage broker.

Financial Advice Disclaimer: This information is general in nature. Mortgage brokers do not provide financial advice. Clients seeking financial advice will be referred to a qualified financial planner.