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Published on: 18 Sep 2023

You've been managing your repayments on a fixed rate home loan and you are now approaching the end of that period. Your bank has sent you a letter, advising you that your payments will soon increase significantly. It's understandable to be overwhelmed, but don't panic.

Many people are dealing with a hike in their mortgage or rent payments. You should not feel ashamed if you feel you will no longer be able to manage the higher repayments.

Instead, let's focus on practical steps you can take to get on top of your financial situation:

STEP 1: Communicate with your lender

First, always reach out to your lender and explain your situation. Ask them what options they have available to help you. They may suggest changes to the loan term or offer different interest rate options. Remember, your lender will want to do what they can to keep you as a customer.

Your lender may look at your "serviceability". This means working out how much you can afford to pay to a loan. This includes working out your current ability to make payments and also your ability to withstand further changes, such as potential interest rate increases.

STEP 2: Consider refinancing

If your current lender cannot provide suitable options, you can explore the possibility of refinancing with other lenders. Despite your financial situation, lenders may still be willing to work with you if you can prove your ability to repay the loan and that the new terms will improve your overall situation. Different lenders might also have more flexible conditions, making it easier for you to meet their criteria.

STEP 3: Create a budget

Get a clear picture of your finances by creating a budget. Use resources like MoneySmart's budget planner to help you identify areas where you can cut costs. Budgeting might seem daunting, but understanding how you spend your money will give you a better sense of control over your financial situation.

STEP 4: Understand your credit health

Educate yourself about your credit health by obtaining a free copy of your credit report, available from each of the credit reporting bodies for free, every three months. Your credit report is used by lenders to assess your creditworthiness, so make sure the details in the report are accurate. 

STEP 5: Seek financial counselling

If you find it challenging to manage your financial situation on your own, don't hesitate to reach out for help. Contact a financial counsellor who can offer you free advice and connect you with relevant services. Consider calling the National Debt Helpline on 1800 007 007.

STEP 6: Evaluate your options realistically

If you've explored all the options but you are still struggling to remain in your current loan or to get a refinance, it may be time to consider downsizing your home. Selling your house is a tough decision, but it might be necessary to alleviate financial pressure. Keep communicating with your lender and discuss your goals to make the process as smooth as possible.

STEP 7: Prioritise your mental health

Remember, financial stress can take a toll on your mental health and well-being. If you find yourself struggling, don't hesitate to seek support. Reach out to Lifeline (13 11 44) or Beyond Blue (1300 22 4636) for 24-hour assistance and guidance on finding ongoing mental health support.

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