Categories
Home Loans

What Happens When You Default On Home Equity Loans?

If the value of your home, or the amount you paid for it, is higher than your first mortgage or the principal, it means that you have equity in your home. You can tap into your equity by applying for a loan, secured by it. These can be a great option to acquire finance, but what happens if you default on home equity loans?

Here are the consequences if you default on home equity loans

1.The account will be sold to a collection company.

Unlike what other people think, foreclosure is usually not the course of action home lenders choose to recover the amount you owe. When you default on your debt, your lender may sell it to a collection company who will take it from there. They will call you, send collectors to your door steps or send demand letters to attempt to recover your outstanding balance.

standard-lawsuit2. Standard lawsuit

If the second mortgage holder decides not to foreclose, can it still recover the money it has lent you? Yes. In an attempt to recover payments, the lender may file a standard suit against you. It is less scary than a foreclosure where you will lose ownership of your home, but it can seriously hurt your credit score.

3. Foreclosure

In case of default, the holder of your second mortgage may initiate a foreclosure to recover the money it lent to you the moment your house is sold at a foreclosure sale. Since mortgage is a senior lien which takes priority over a home equity like a second mortgage (because the loan was registered earlier) the first lender gets paid first. But, what if you refinanced the loan—does it mean that the second mortgage lender becomes the first priority? It depends. Whichever lender has the certificate of title will be entitled for the payout first. If you were in the process of refinancing but it was never complete before the foreclosure on the property and you didn’t pay the previous lender out, they are not eligible for the funds. If your previous lender still holds the certificate of title, then they are the ones who need to be paid out.

avoid-consequences

Here are tips to avoid the above-mentioned consequences of not paying your home loan on time…

Don’t hide from your creditors.

They will not be so enthusiastic in working with someone who avoids their calls, ignores their letters and refuse to cooperate with their offer to help for a few months. Remember that most mortgage lenders will work with borrowers who are struggling to make payments to encourage payment. So, if you’re missing payments, contact your lender right away. Inform them about your current financial situation and express your willingness to work out a repayment plan suited to your condition. Your lender may modify the terms of your loan, lower or raise the interest rate, increase or decrease the monthly payments, depending on your situation and financial capacity. It can also be a combination of the abovementioned options to make the home loan more affordable.

Explore available options to avoid foreclosure

Are you struggling to make your second mortgage payments? If foreclosure is imminent because of default, check out some of the alternatives to foreclosure that Australian Lending Centre offers:

If you want to consolidate your debts into 1 easy-to-pay, low-rate loan with low monthly repayments, get your finances back into order with a debt consolidation loan. Learn more about home equity loans and the suitable financial solutions available for you by calling 1300 138 188 today!

Categories
Refinance and Refinancing

Will Lender Approve a Home Loan With Unpaid Defaults?

A lot of people think that repaying unpaid defaults is important when it comes to being approved for a mortgage, but this isn’t always the case. Yes, you can get a mortgage without your defaults because there are many flexible lenders who are more than happy to approve your application despite a poor credit score. But don’t jump at the first home equity loan available-because lenders aren’t created equal. Here are some factors to consider when applying for a home loan with unpaid defaults.

1. Payment status

Mainstream lenders look favourably to applicants that carry mortgages with settled defaults than those with unpaid ones. Some creditors are concerned with the date default was registered and not when they were paid. Others also use certain parameters in assessing your risk—which includes all other financial information that could boost your eligibility for a mortgage.

2. Existing credit issues

It is difficult to get a mortgage if you have other credit problems. Lenders consider your debt-to-income ratio. So, if your debts are too high, it would surely have a strong impact on your eligibility, loan rate, fees and repayment terms. If you’re using payday loans, it will also affect your chances of getting a loan.

3. Amount of the default

Before applying for a home loan with defaults, it is important to consider how much your default amounts to. Most lenders can approve a loan for you despite a small paid default which is less than $500. If you have a paid default which is less than $1,000 and you have settled it more than 6 months ago, even prime lenders can lend you money, especially if your financial situation is already stable. If you have a bad credit because you have over $1,000 unpaid defaults, you may not have the best of luck with mainstream lenders. Nonetheless, a specialist lender can give you reasonable loan terms. But beyond that amount, you need an alternative lending specialist like Australian Lending Centre, especially if you have more than $5000 of unpaid defaults.

4. Type of loan

Default on secured loans

What would happen to your home loan application if you default on your mortgage? First and foremost, let’s look at the nature of the loan. It has collateral—which is your home. In case of default, your creditor has the legal right to foreclose on your home after issuing a notice to a client in default and asking you to make good on your payment—and you failed to comply. If the bank takes ownership of it and puts it up for resale at a public auction-you can redeem your property by paying the full amount of debt plus fees. Or, you can refinance your home loan using Australian Lending Centre’s Mortgage Arrears program to pay the total amount due even before the lender decides to foreclose your house.

Default on unsecured Loans

Unsecured loans aren’t as risky on the part of the borrower-although the risk of not being repaid is high for the creditors since there is no collateral that they can take in case of default. Not paying after 60 days can cost you late fees and increase. If you don’t pay yet, you’ll definitely have to look for the default status on your credit file. But, the government does not leave you unprotected. You still have to receive a default notice first.

If you have missed payments on your credit card or from a personal loan lender, you have the right to receive a Default Notice which specifies the number of payments you failed to pay and other requirements of the credit contract that you haven’t complied with.

The notice specifies the amount to pay and the period of time you have to do so.  It will also warn you of the consequences of failure to pay within the period of notice-such as demanding repayment of the whole credit card balance or loan amount, not just the monthly balance you missed to pay.

How do I apply for a loan when I have unpaid defaults?

Default explanation letter

You have to increase your chances of approval by writing an explanation letter for your default with supporting evidence. For example, if you have missed payments because of sickness, temporary unemployment (but you’re employed now) you must provide evidence of the same. It will back up your explanation of why you defaulted on your loan.

Payment

Pay unpaid defaults and get the credit provider to update them into “paid” on your credit file before you submit your loan application.

Specialist lender

Apply with a lender like Australian Lending Centre that can accept borrowers with defaults. We can help with your home loan arrears, so we suggest that you talk to our financial specialists today at 1300 138 188 or Enquire now.

Categories
Mortgage

The Reality of Mortgage Repayments

In spite of the loan solution you carefully select, you should comprehend the way in which a loan works, and what it implies. Understanding the reality of mortgage repayments is the first step to making the right decision to fit your financial status.

Understanding Interest

Recently, Australians have benefited from low and attractive interest rates. So, how does this influence your mortgage repayments? Mortgage providers grow or diminish their rates, to mirror the movement exercised by the set cash interest rate. At the moment, interest rates are estimated at around 4.5 per cent, depending on the lender.

Although selecting fixed mortgage repayments over variable ones might seem the right choice, as it protects you from fluctuations, some other aspects should be considered. If you’re locked into a variable home loan, when the cash rate lowers, your interest will also decrease. Even though this is an unmatched advantage, Aussies should know that low rates don’t plan on staying this way forever.

To grasp the way in which this phenomenon influences your mortgage repayments, hear us out. A standard variable rate for a 25-year old loan of $200,000 would have a $1112 monthly payment, with 4.5 per cent interest rate. If this would change with as little as one per cent, it will either rise to $1228 or diminish to $1001.

Also, bear in mind that, over the life span of a loan, fluctuations may reach $100 per month. What we’re trying to say is that you should embrace a repayment plan with the right contingency measures, in the case in which the interest rate spikes.

When the Loan Matures

You should also note that the market conditions are due to change. That is inevitable. In this respect, you should take advantage of whichever opportunity you have to refresh your financial approach. An option might be to discuss with your financial advisor. But, before doing that, there are some solutions for adjusting your mortgage repayments:

  • Refinancing: When the interest rates are low, you can always consider refinancing. That may be a more convenient option. Even though there are exit and entry costs that should be factored in, as a general rule, you’ll recoup those expenses over the life of the loan.
  • Pay ahead: If the interest rates are low and your budget enables you, you should consider getting ahead on your mortgage repayments. If you manage to make a considerable repayment during this time, not only that you will decrease your overall loan balance, but you’ll save a lot on interest rate payments.
  • Fix your loan: If your credit conditions are permissive enough, we advise you to lock in the new low rate.

To conclude, comprehending the market conditions does pay off. When you sign a loan agreement, you should know what it implies, how the market is due to change and how it can affect you.

In spite of your current status, don’t hesitate to refresh your mindset, in the case in which the market alters in your favour. Why shouldn’t you take advantage of it? Nonetheless, bear in mind that you should discuss with your financial advisor before taking the leap.

Categories
Home Loans

4 Things to Do to Avoid Defaulting on Your Mortgage Repayment

If you have a current mortgage and you suddenly lost your job or your source of income, you surely are in trouble. Aside from making ends meet for your daily necessities, you have to find ways to continue repaying your home loan. That will be a big challenge especially if you are certain you cannot afford to shoulder your monthly mortgage repayment anymore.

It is a must to avoid falling into a default. Aside from possibly being evicted from your own home, you will not like its long-term effect on your credit history. Try to prevent it from happening. Here are four effective ways to do so.

Categories
Home Loans

NSW Tops Home Loan Default List

As the unemployment rate in Australia continues to rise, up to 1 in 16 homeowners are defaulting on their home loans. Of the top 20 postcodes where mortgages are more than one month in arrears, 19 postcodes are in NSW, data obtained by The Daily Telegraph reveals.

An analysis by the UWS’s Urban Research Centre has found that areas along the M4, Windsor Rd and Canterbury Rd, as well as the Central Coast, are feeling the impact of the alarming recession. The hardest hit is the area around Fairfield and Liverpool, where the latest figures show that the unemployment rate has jumped to 10.5% (the highest it has been since 2001).

The top areas in NSW for defaulting on home loans is Nelson Bay, followed by Raymond Terrace, Katoomba, Greenacre, Guilford, Fairfield, Cessnock and St Marys.