Losing your job can be a stressful and challenging experience, especially if you have a mortgage to pay.

Without a steady income, you may struggle to meet your monthly repayments and risk falling behind, which could result in your lender taking legal action to repossess your home.

However, there are ways to manage your mortgage during unemployment and prevent foreclosure.

In this article, we will explore the problem, agitate the consequences, and offer practical solutions, based on real-life case studies and Australian resources.

Unemployment and Falling Behind on Mortgage

Losing your job is one of the most common reasons why homeowners default on their mortgages.

According to the Australian Bureau of Statistics, the unemployment rate in Australia reached a peak of 7.5% in July 2020, due to the COVID-19 pandemic, which affected many industries, including hospitality, tourism, and retail.

Even before the pandemic, however, some areas and sectors had higher rates of unemployment than others, such as regional areas, indigenous communities, and young people.

If you lose your job and cannot find another one quickly, you may face the following consequences:

Reduced income

Your main source of income may disappear or be significantly reduced, depending on your entitlements to redundancy pay, superannuation, or government benefits.

You may have to rely on your savings or borrow from family or friends to make ends meet.

Increased debt

Missing out on your mortgage repayments may incur additional fees, charges, and interest, which could increase your debt and make it harder to catch up.

You may also receive letters, calls, or visits from debt collectors, who can be intimidating and aggressive, and may pressure you to pay immediately.

Legal action

As you continue to default on your mortgage, your lender may issue a default notice, which gives you a certain period to catch up or make alternative arrangements.

If you fail to do so, your lender may start foreclosure proceedings, which can result in the sale of your home, the repayment of your debt, and the eviction of you and your family.

The Emotional and Practical Stress of Losing Your Home

Losing your home can be a traumatic and life-changing event, which can affect not only your financial stability but also your mental and physical health, your relationships, and your future prospects.

Some of the emotional and practical stress that you may experience include:

Anxiety

You may feel anxious, worried, or overwhelmed about your financial situation, your housing options, and your personal identity.

You may also feel guilty or ashamed of your inability to keep up with your mortgage repayments, especially if you have children or other dependents.

Depression

You may feel depressed, sad, or hopeless, about your prospects of finding a job, maintaining your lifestyle, or recovering from your losses.

You may also withdraw from social activities, lose interest in hobbies or goals, and experience changes in your sleep, appetite, or energy.

Disruption

You may have to disrupt your daily routine, your living arrangements, and your social connections, if you have to move out of your home or find temporary accommodation.

You may also have to face the practical challenges of packing, storing, and transporting your belongings, and the emotional strain of leaving your memories and your community behind.

Stigma

You may face social stigma or discrimination, if you have to disclose your financial difficulties or your housing situation to others.

You may also feel judged or blamed by your lender, your creditors, or your peers, who may assume that you are irresponsible, lazy, or undeserving of help.

Practical Strategies to Manage Your Mortgage and Avoid Foreclosure

If you find yourself in a situation where you are unable to pay your mortgage due to job loss, there are several practical strategies you can use to manage your debt and avoid foreclosure.

Here are some of the most effective solutions, based on real-life examples across Australia:

Contact Your Lender and Seek Assistance

The first step you should take is to contact your lender and explain your situation. Your lender may be willing to work with you to find a solution that suits your needs and helps you avoid foreclosure. Some of the options you may consider include:

Payment deferral

Your lender may allow you to postpone your repayments for a certain period, during which you do not have to make any payments or pay only a reduced amount.

This can give you some breathing space to find a new job or recover from your financial hardship.

Loan restructuring

Your lender may agree to change the terms of your loan, such as the interest rate, the repayment period, or the type of loan, to make it more affordable and manageable for you.

This can reduce your monthly repayments and make it easier for you to catch up on your arrears.

Hardship variation

Your lender may offer you a hardship variation, which is a formal agreement that sets out new repayment arrangements that take into account your financial situation and your ability to pay.

This can provide you with a structured and flexible way to manage your debt and avoid foreclosure.

Alice and John, a couple from Melbourne, lost their jobs during the pandemic and fell behind on their mortgage repayments.

They contacted their lender and explained their situation, and their lender offered them a payment deferral for six months, which allowed them to focus on finding new jobs and reducing their expenses.

After six months, they resumed their repayments, which were adjusted to their new income level, and avoided foreclosure.

Apply for Government Support and Assistance

In addition to seeking help from your lender, you may be eligible for government support and assistance, such as:

JobSeeker or JobKeeper payments

If you are unemployed or underemployed, you may be able to receive income support from the government, which can supplement your income and help you cover your essential expenses, including your mortgage repayments.

You can apply for JobSeeker or JobKeeper payments through the Department of Social Services or the Australian Taxation Office, respectively.

HomeBuilder or First Home Loan Deposit Scheme

If you are a first-home buyer or a homeowner who wants to renovate or build a new home, you may be able to access government grants and schemes that can help you with your housing costs.

You can check your eligibility and apply for these programs through the Australian Government’s Treasury or the National Housing Finance and Investment Corporation, respectively.

Jason, a single parent from Brisbane, lost his job as a chef due to a workplace injury and struggled to pay his mortgage and his bills.

He applied for JobSeeker payments and received additional support from his community center, which provided him with free meals and financial counseling. He also applied for the First Home Loan Deposit Scheme and was able to buy a more affordable home that better suited his needs and budget.

Sell or Rent Out Your Property

If you cannot afford to keep your home and avoid foreclosure, you may consider selling or renting out your property. This can provide you with a lump sum of cash or a regular income that can help you pay off your debt and find a new place to live. Some of the options you may explore include:

Private sale

You can list your property for sale on a real estate website or with a local agent and negotiate with potential buyers to get the best price for your home.

You can use the proceeds from the sale to pay off your mortgage and other debts, and use the remainder to cover your moving expenses or start a new business or investment.

Auction

You can also sell your property through an auction, which can attract more buyers and generate a competitive bidding process.

You can set a reserve price that is higher than your outstanding mortgage and let the buyers bid until the highest offer is accepted.

The proceeds can be used to settle your mortgage and other costs, and use the remainder for your future plans.

Rent

If you do not want to sell your property, you can consider renting it out to tenants who can pay you a regular income that can cover your mortgage repayments and other expenses.

You can use a property manager or a real estate agent to find tenants, negotiate the rent and the lease agreement, and manage the property on your behalf.

You can also claim tax deductions for the costs of maintaining and repairing your rental property.

Sarah and Michael, a couple from Perth, had to relocate to another city for a new job opportunity and could not afford to keep their home.

They decided to sell their property through an auction and received multiple offers that exceeded their expectations.

They used the proceeds to pay off their mortgage and buy a new home in their new city, which was closer to their workplace and had a lower cost of living.

Conclusion

If you lose your job and struggle to pay your mortgage, you have several options to manage your debt and avoid foreclosure.

You can contact your lender and seek assistance, apply for government support and assistance, or sell or rent out your property.

Each solution has its advantages and challenges, and you should consider your financial goals, your lifestyle, and your future plans before making a decision.

You should also seek professional advice from a financial advisor, a mortgage broker, or a legal expert to ensure that you make an informed and responsible choice.

With the right approach and support, you can overcome your financial hardship and achieve your housing and financial goals.