Mortgage Hardship Variation

If you are experiencing temporary difficulties in meeting your mortgage repayments, you may be eligible for a hardship variation from your lender. Some common reasons behind short-term mortgage repayment problems include job loss, injury and illness.

How do I apply for a hardship variation?

As soon as you are aware that you may experience some difficulty in making your mortgage repayments, you should contact your mortgage broker and arrange to send a letter requesting a hardship variation to your lender. This should include:

  • Your current loan details
  • Reason for hardship variation request e.g. temporary loss of job
  • Current income position
  • Proof of ability to meet repayments after the variation has run its term

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Your mortgage broker can help ensure all the relevant information has been included.

In most cases, your lender will want to work with you to work out a repayment plan, as it is more cost effective for them for you to keep your home too. However, if for some reason you do not get a positive reaction from your lender, you can apply for assistance via an External Dispute Resolution Service, such as the Banking Industry Ombudsman. Your mortgage broker will assist you with this process if it is required.

How do hardship variations work?

If your home loan is up to $500,000, you are legally entitled to be considered for a hardship variation. For loans of more than $500,000, it is up to the lender to determine if they will consider your request. Regardless of your home loan value, it is important to contact your lender to discuss the options available to you.

There are a number of different formats a hardship variation may take, depending on your personal financial circumstances. The federal government has recently negotiated with the major banks to make these provisions more standard, however there are still variations between lenders on what is available. Hardship variations available may include:

Temporary reduction of mortgage repayment amount

If you are able to continue to make repayments, but cannot afford the full required repayment amount, you can apply for a temporary reduction in repayment amount. When you are submitting your request for a hardship variation, you should ensure you state the amount you believe you can continue to repay.

If you are already experiencing difficulties when you submit your request, it will help if you continue to make repayments at the proposed new level to show you are capable of meeting this repayment amount.

It’s important to note that your overall loan term will be extended to accommodate the temporary reduction in repayment amount.

Temporary suspension of mortgage repayments

A second option is to suspend your mortgage repayments or take a mortgage repayment holiday for a set period of time. Most lenders have an allowance for anywhere up to 12 months break from your repayments, depending on your situation. After the hardship variation period ends, your repayments will revert to normal. All repayments and interest charges will be capitalised to your loan balance during the repayment holiday. This option will also extend your overall loan term.

Reduction and suspension of mortgage repayments

In some cases, you may be able to secure a hardship variation that combines both a reduction in your repayments and a temporary suspension of your repayments.

Convert your repayments to Interest Only

In some cases, you may be able to switch your home loan to an interest only repayment option, which will reduce your required regular repayments.