Home Loan Strategies For Borrowers Experiencing A Temporary Drop In Income

Sooner or later most young families find themselves in a situation of reduced income. It may be only for a few months while one of you is off work having a new baby, or it can be for a period of several years until children are ready to attend school. Sometimes there is involuntary redundancy or illness which results in a temporary reduction to the family income. If that happens there are a number of strategies that you can discuss with your home lender that will help you manage home loan repayments without going into arrears or needing to miss meals to cover the mortgage.

Some of you may be tempted to look at a mortgage refinance in an effort to secure a cheaper loan. However if your income is reduced you may no longer be able to qualify for a new home loan of the same amount with any other lender. Although the currently unusually low interest rates will mean that you can afford a larger loan than you may have been assessed for at the time that you had originally applied for a home loan.

Extend term of mortgage

One of the simplest changes that can be made to your current mortgage is to just extend the remaining term of the loan. If you have 20 years remaining on the loan, you can reduce your monthly payments by simply extending the loan term to say 25 or 30 years.

While such an extension will reduce periodic payments it will make the mortgage cost you more over the full life of the loan (unless you will make extra payments to reduce loan principal whenever you can). This is so because you will end up paying interest on your home loan for a longer time.

Not all borrowers are able to qualify for a mortgage term extension. If you are in your late 40’s or early 50’s you may find that a 30 year mortgage is simply not available to you given your age. This is so because the government does not allow lenders to approve us for home loans that we will not be able to repay during our working life (before retirement).

Go to interest only repayments

You are able to request that your lender temporarily moves you to interest only repayments instead of interest and principal. Most interest only mortgages are offered for up to 5 years before you will be moved back to principal and interest. This change can significantly reduce your repayments.

Repayment holiday

In the event that one of you has unexpectedly lost their job or some other unforeseen event has occurred – you may be experiencing temporary financial hardship. Should that be the case, do not fall behind with your mortgage repayments, simply speak to your lender. You should be able to qualify for a payment concession over several months such as a repayment holiday or reduced repayments to help you over a difficult period. You are entitled to special consideration and should insist on receiving it. If you feel that your lender is being difficult despite your financial hardship, there are avenues for complaint including their dispute resolution body and the finance ombudsman.

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Oliver Revilo