Entering into a mortgage is a huge responsibility, and for most people, it is their biggest financial commitment. If not considered carefully, a mortgage can have a significant impact on your financial wellbeing.
A mortgage is a legally binding contract between a mortgagor (the borrower) and a mortgagee (the lender), often used for the purposes of purchasing a property. The mortgagor will have several obligations under the agreement, the most critical of which is the obligation to make regular payments which includes an interest component and a principal component (so that the loan amount is reduced).
As a borrower and in light of the current climate of increasing interest rates, as repayment amounts increase, it is not surprising that some borrowers may face difficulties in keeping up with their payment obligations. If payments are not made on time as per your mortgage terms and conditions, you will likely be in default.
This article will delve into what a mortgage default is and the consequences that arise.
What is a mortgage default?
A mortgage default is when a mortgagor breaches the terms and conditions of their mortgage, most commonly by failing to make payments on time. When this occurs, you will normally receive a breach notice from your lender requiring you to rectify your breach. Default under the mortgage is serious and will likely incur additional fees.
If after notice you have still not made repayments or negotiated a resolution with your bank, you may receive a formal letter from your lender pursuant to the Real Property Act 1900 (the Act) requiring you to make payment of all outstanding monies within one (1) month. It is strongly suggested that you take such notice very seriously as non-compliance, will entitle the lender to take further steps in the recovery of its debt which may include charging hefty default interest, fees and furthermore, the ability to take possession of the property and sell it as mortgagee in possession.
Consequences that arise from a mortgage default
Once there has been an unremedied breach, your lender will typically have the power to:
- Charge interest at the default rate (which will typically be much higher than the normal rate of interest).
- Charge debt recovery fees.
- Charge other fees.
- Take possession of your property.
- Sell your property.
In addition to the above, a default will likely affect your credit score and accordingly, you may find it difficult in the future to apply for other loans, whether that be for purchasing luxury items or purchasing another property.
At RCR lawyers we think that it is very important to understand the terms of your mortgage before signing any loan documents.
Contact us at [email protected] Or 02 9307 8900 for an initial discussion for any property-related questions.
The blog published by Rostron Carlyle Rojas is intended as general information only and is not legal advice on any subject matter. By viewing the blog posts, the reader understands there is no solicitor-client relationship between the reader and the blog published. The blog should not be used as a substitute for legal advice from a legal practitioner, and readers are urged to consult RCR on any legal queries concerning a specific situation.