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Mortgage stress handbook

6. Making a workable repayment arrangement - my rights!

When you are in mortgage stress there are two main things you have to do:

  1. Keep making repayments to your home loan (of an amount you can afford); and
  2. Negotiate an affordable and realistic repayment arrangement with your lender.

Making repayments

Your home is where you live. It is your shelter. It is your highest priority debt repayment. Your home loan repayments are your highest priority because:

  • If you do not pay the lender can take your home (after completing certain steps)
  • It is a large debt so interest will accumulate fast
  • It is easier to make repayment arrangements (or even arrangements where you do not make any repayments for some months) on smaller debts like credit cards

When you decide which debts are to be paid, it is strongly recommended that you make your home loan repayment in full if you can. If you cannot make it in full then pay as much as you can on a regular basis.

It is better to pay an amount on a regular basis and try to pay more when you can than paying lump sums on an irregular basis. This is because with regular repayments the lender can see how much you can afford and that you will keep to a regular repayment amount.

The problem with direct debits and mortgage stress

If you are making your mortgage repayments by direct debit then you will have a problem if you are in financial hardship and cannot afford the repayment. If there is not enough money in your savings account to cover the full repayment, the direct debit will be rejected (“dishonoured”) and you will not make any repayment at all. This will cause further financial hardship as you may be charged fees on your savings account and your home loan.

If you cannot make the full loan repayment then you need to either:

  • Contact your lender and lower the direct debit to an amount you are sure you can afford; or
  • Cancel the direct debit and make repayments using another method e.g. BPay, Direct Credit.

If your income is irregular, you might want to set up a direct debit for a regular lower amount and use an alternative payment method to make extra payments when additional income is available. Whatever you choose to do you need to do it as soon as possible. If you want to cancel your direct debit you can do this by notifying the bank, credit union or building society where your savings are held. Once you have cancelled the direct debit the bank, credit union or building society must stop deducting repayments. A letter you can use to cancel a direct debit is at financialrights.org.au/sample-letters

Some lenders insist on repayments by direct debit only. If you are having trouble finding an alternate way to pay your lender, get advice.

Negotiating a repayment arrangement

Your rights

The credit law gives you some important rights when you are in financial hardship:

  1. The right to apply for a financial hardship arrangement - being a change in repayments. The application for financial hardship is called a "hardship notice". The notice can be verbal or in writing. The request does not have to be formal, an expression that you are having difficulty with repayments is sufficient.
    Remember: the lender does not have to agree to the change if you will not reasonably be able to repay the loan if the change is granted. There must also be a reasonable cause for the need for the change.
  2. Within 21 days of the hardship notice the lender can ask for relevant information, for example, payslips, medical certificate and/or a current statement of your financial position. You must provide the requested information (but it must be relevant).
  3. After the lender has received the requested information it must respond in writing within 21 days (except if the agreed arrangement is under 90 days) stating:
    1. whether the lender agrees to the change;
    2. if the lender does not agree to the change then notify you in writing:
      1. That the requested change is not agreed
      2. The lender’s reason for refusal
      3. Of your right to go to the complaint resolution scheme and the contact details for AFCA.
  4. The lender cannot commence enforcement proceedings after the hardship notice is given until the response under point 3b above has been sent (unless you have already applied for the same hardship arrangement in the last 4 months).
  5. If the lender agrees to the suggested change the lender must set out the details of the change in writing within 30 days after the agreement is made.
  6. If the lender does not agree to the change your next step is to apply to the complaint resolution scheme, AFCA, for a review of that decision.
  7. If you are unsuccessful with AFCA you still may have the option of going to court.

Industry Codes of Practice

Many lenders agree to comply with an industry Code of Practice. There are three main Codes of Practice. In each Code of Practice there are sections that cover financial hardship and how the lender should respond to your request for a repayment arrangement. See Chapter 13 for the relevant sections of the Codes of Practice.

Working out what you want to ask for

Step 1

Before you do anything you need to work out what you want to offer as a repayment arrangement. The repayment you offer must be affordable. You must be able to make the repayment each month. Do not offer to make repayments you cannot afford.There are several ways to work out what repayment you can afford:

  1. Call a financial counsellor for assistance on 1800 007 007
  2. Do a budget see www.moneysmart.gov.au

As a guide, the repayment you offer should not be more than 50 – 60% of your income. You need to make sure you have income left for basic needs such as food.

Don’t forget you can also make hardship arrangements with your other creditors, like your credit card and energy providers.

If you cannot afford to make any repayments then you will need to ask for a period of time of making no repayments.


There are serious disadvantages to making no repayments at all:

  • Your lender is less likely to consider further requests for hardship if you have been making no repayments at all,
  • your debt will grow very fast, and
  • you will get out of the habit of making regular repayments.

Step 2

You need a plan on how you will return to making the usual repayments.

If you are not going to be able to return to making the usual repayments to pay off the loan for the foreseeable future then you need to consider selling your home. See Chapter 8.

In many situations you may not know when you will be able to return to making the usual repayments, for example, if you are ill or looking for work. In these situations you need to estimate how long you will need and ask for further time, if required.


Coco has just become unemployed. When Coco approached her lender for a repayment arrangement she asked for a reduced repayment arrangement for 6 months. Coco believed she could get a job in 6 months. Coco managed to get a job after 4 months. She returned to making her usual repayments, the arrears were added to the loan and the term of the loan was extended.

Calling the lender

You need to make sure you cover the following when you call the lender:

  1. Make a note of the phone conversation (see below).
  2. Ask to be transferred to the financial hardship team (if there is one).
  3. Tell the lender you are in financial hardship.
  4. Tell the lender what you can afford to pay per month.
  5. State how long you need to make reduced repayments for. If you are unsure how long, you should ask for between 3 and 6 months.
  6. Ask that the term of the loan be extended (alternatively you will need to pay extra later to make up for the amounts unpaid during the repayment arrangement). Ask how much your new repayments will be at the end of the variation. If you won’t be able to afford these new repayments, insist on extending the term of the loan instead.
  7. Request that all legal action, default fees and default interest stop while the lender considers your request.
  8. Request that the lender not list a default on your credit report and ask the lender how they will report your repayment history while the arrangement is in place.
  9. Ask the lender to agree to the above request.
  10. Ask for a postal address and/or email address for the lender.
  11. Ask the lender how they will report your repayment history while the arrangement is in place.

If you can, confirm the agreement in writing.

Writing to the lender

If you are not comfortable calling the lender, you can write and give a hardship notice instead. A sample letter for you to use is included in this handbook in Chapter 13. If you have tried calling the lender without success, you might want to try writing to the lender instead.


If you have received court documents, or you have a default notice due to expire then you need to act immediately. Instead of calling or writing to the lender, first lodge a complaint with the complaint resolution scheme, AFCA, straight away and then write to the lender immediately afterwards.

Completing a Statement of Financial Position

The lender may ask you to complete a Statement of Financial Position. You should agree to do this and it is recommended you get help from a financial counsellor in completing this form. Tell your lender if you need time to see a financial counsellor.

It is important that your Statement of Financial Position is consistent with your repayment request. If your Statement of Financial Position shows that you have more money available than you are offering in reduced repayments:

  • you need to check that you have included all your essential expenses. If you have done so, then you need to consider offering more in repayments.
  • If your Statement of Financial Position includes expenses the lender may consider frivolous, or unnecessary, you need to ask yourself whether you can do without those things.

If, on the other hand, your Statement of Financial Position shows that you cannot afford the repayments offered:

  • the lender may reject the application because you are not likely to keep to the arrangement or get back on track with your loan.

If you have checked your income and expenditure is correct, and there is nothing you can change to increase your income or lower your expenditure, then you need to offer less and/or consider selling your home (see Chapter 8).

Take notes when you call the lender

Date        /       /


Lender Reference (who you spoke to):

Date        /       /


Lender Reference (who you spoke to):

Date        /       /


Lender Reference (who you spoke to):