Mortgage arrears: refinancing out of trouble

What are mortgage arrears?

Mortgage arrears means you have missed one or more repayments and the loan is behind. It can happen to anyone: a job loss, a business slow-down, an illness, a relationship breakdown or a run of unexpected costs. It is stressful, and the letters that follow are rarely friendly. The good news is that arrears is not the end of the road, and there are structured ways through.

This page explains the main options, with the official rules drawn from MoneySmart, and shows where refinancing can fit. Ownright Custom Finance helps borrowers in this position across Australia. Trevor Scott’s four decades in lending mean we have seen most variations, and we approach every conversation without judgement.

What happens when I miss repayments?

MoneySmart sets out the general sequence.

• Hardship help is available. All lenders have hardship teams. You may be able to change your loan terms or pause or reduce repayments for a time. The earlier you ask, the more options you tend to have.
• The lender must respond. After a hardship request, it must write to you within 21 days with the outcome. If it asks for more information, it must respond within 21 days of getting it. If it refuses, it must give a reason.
• A default notice may follow. A lender can send one once a repayment is overdue, though it may wait until the loan is 90 or more days behind. The notice gives 30 days to pay the missed amounts plus the regular repayment, and you can still apply for hardship help in that window.
• Disputes have an avenue. If you cannot agree with your lender, the Australian Financial Complaints Authority offers free, independent dispute resolution.
• Free counselling exists. The National Debt Helpline on 1800 007 007 provides financial counsellors who can help you plan.

What are my options when I’m behind?

Option	What it involves	When it tends to fit
Hardship variation	Temporary change to repayments with your current lender	Short-term setback, income likely to recover
Refinance to a new lender	Pay out the current loan and start fresh	Income has recovered and a lender will consider the history
Short-term finance	A private loan to clear arrears and buy time	A tight deadline, with a plan to refinance later
Debt consolidation against the home	Roll other pressing debts into one structure	Several debts are driving the problem
Planned sale	Sell on your terms before the lender forces it	The loan is no longer sustainable and equity should be protected

No single option is right for everyone. The best choice is the one that stops the damage with the fewest long-term costs.

Can I refinance out of arrears?

Possibly, and it depends on what a lender sees.

Lenders will usually ask:

• How many repayments were missed and for how long?
• What caused the problem, and has it been fixed?
• Is current income enough to carry the new loan?
• What is the property worth compared with the debt?
• Have repayments been on time since the problem?

A temporary cause, such as an illness, a delayed invoice or a short period between jobs, is easier to explain than an ongoing shortfall. If the cause has been resolved and payments have been steady, some non-bank lenders will consider an application. A private lender may also help when the deadline is tight, with a plan to move to a longer-term loan afterwards.

Worried about a letter you’ve received?

Call early. Tell us where things stand and we will go through the paperwork with you privately.

Who does this page suit?

• Homeowners who have missed repayments and want to avoid a default listing or a forced sale.
• Borrowers whose lender has issued a default notice.
• Self-employed owners hit by a quiet period who are now earning again.
• People who need to clear arrears and consolidate other pressing debts.
• Families going through separation who need to restructure a loan.

Related pages that may help are bad credit home loans and stopping a mortgagee sale.

How does Ownright approach arrears?

We start by listening. Then we get the dates straight: what has been missed, what notices have been issued, what deadlines exist. Dates drive the options.

Next we weigh the paths. Sometimes the most sensible step is to ask your current lender for a hardship variation, and we will say so. Sometimes the lender has lost patience and a refinance is the better route. We also look at solutions that most brokers rarely consider, such as pairing a short-term private loan with a plan to refinance to a more conventional lender after a few months of clean repayments. If Ownright can’t find the solution, no one can.

We keep the process honest. We tell you what each path costs, what the risks are and what happens if it doesn’t work, and we never promise an approval. Everything is arranged Australia-wide from our Knoxfield, Victoria head office.

How do arrears show up on your credit file?

Under the credit reporting rules explained by the Office of the Australian Information Commissioner, a lender can report your monthly repayment history, and that history stays on your file for two years. Financial hardship information stays for one year. A default, which is a more serious listing, stays for five. So a future lender looking at your file sees a month-by-month picture, not a single snapshot.

That is useful to know, because it shows why the pattern matters as much as the event. A short run of missed payments followed by a long stretch of on-time months reads very differently from a slow, continuing slide. Each clean month you add after a setback strengthens the story, which is one reason a hardship arrangement that you then keep to the letter can be worth more than it first appears.

What should a hardship request actually say?

A request is easier for a lender to approve when it is specific. It helps to cover:

• The cause. One or two plain sentences: illness, lost shifts, a slow quarter, a separation.
• How long it is likely to last. Lenders respond better to a defined period than an open-ended plea.
• What your income looks like now. Include any recovery that has already started.
• What you are asking for. For example a pause, reduced repayments for a set period, or a longer loan term.
• What you can afford to pay in the meantime. Even a partial amount shows good faith.

Put the request in writing, keep a copy and note the date. If the answer is a refusal, the lender must explain its reasons, and that explanation often tells a broker exactly what a different lender might accept.

How does arrears look for different kinds of borrower?

Borrower	What tends to matter most	What helps the file
Employee on PAYG	Whether the job is secure again and how long it has been	Recent payslips and the employer’s confirmation
Self-employed owner	Whether lodgements are current and trading has recovered	Recent BAS, bank statements, an accountant’s letter
Investor with a rental	Whether the property is let and the rent is arriving	Lease, rent ledger, property manager statements
Separating couple	Who will carry the loan and how the other party exits	A clear agreement, or a plan for one to hold the loan alone
Retiree or pension income	Whether income is stable and the loan has a defined end	Income statements and a realistic repayment plan

Questions to ask before accepting any rescue offer

When time is short, almost any offer looks attractive. Before you sign, it is worth being able to answer these:

• What is the total cost of this solution from start to finish, including everything paid at settlement and on exit?
• How does it end? If the plan is a later refinance, what has to be true for that to happen?
• What happens if the plan runs late by a month or two?
• Is my home the security, and is any other asset affected?
• Can I repay early if things improve, and does that cost anything?

A good broker will welcome those questions. If you would like them worked through against your own paperwork, send us the details and we will go through it with you.

An illustrative example

This scenario is illustrative only and does not describe a real client.

A tradie broke his wrist and was off work for three months. He fell behind by several repayments and received a default notice. He is back at work, earning normally, and has made the last two repayments on time.

Ownright prepares a clear timeline: the injury, the lost income, the return to work and the recent payments. We approach lenders who consider recovered arrears and keep a short-term private option in reserve in case the dates run tight. The first track works, the arrears are cleared at settlement and the default is avoided.

Mistakes to avoid

• Ignoring letters. The clock starts running whether or not you open them.
• Making a bad deal in a panic, such as an expensive short-term loan with no exit plan.
• Hiding the cause. Lenders respond better to honesty than to mystery.
• Taking out new credit while behind, which tightens options further.
• Leaving it until the last week before a deadline.

Documents to have ready

• Your latest loan statement showing the arrears.
• Any default or demand notices.
• Recent payslips or business financials.
• Evidence of the cause, such as a medical certificate or a termination letter, if relevant.
• A list of other debts and monthly commitments.
• Council rates and insurance details for the property.

Take a breath, then call us

Apply online or ring Ownright Custom Finance on 03 7043 7233. If a sale is already looming, our guide on how to stop a mortgagee sale explains the options.