Face up and ask for help

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The proverbial has hit the fan and you can't pay your mortgage.

What do you do? A. Stick your head in the sand. B. Do a runner. C. Call the bank (or a mortgage broker)?

All too many people do A or B, says Jeff Royle, mortgage broker of iLender. No matter what you think of banks, the law says they have to help if they can. But that's only the case if you make contact by doing C.

Under the Credit Contracts and Consumer Finance Act (CCCFA) lenders must consider a hardship application.

If you front-foot the process it's likely you can arrange a repayment holiday followed by a period paying interest only.

If you do nothing, however, says Royle, you'll pretty soon get a letter under the Property Law Act telling you to pay up or else, followed by another shortly afterwards if you haven't paid, informing you that your house will be sold.

Royle cites two recent examples that went in totally different directions. In the first case a "high-flying" client suddenly lost his job when his company pulled out of the country.

He went straight to Royle, who negotiated a three-month payment holiday through Sovereign with the repayments capitalised on to the mortgage.

By the end of the three months the client had landed a new job on a $100,000 basic salary but needed to "spool up" his commission to a point where he could totally cover the principal and interest mortgage.

Sovereign, says Royle, was happy to do this because the client kept in constant contact with his mortgage broker and provided documentation before it was asked for such as his new employment contract.

More common, is what happened to another client who stuck his head in the sand until it was too late.

The client thought he'd been offered a better job up north, although he had no paperwork.

He put the house on the market and his family told him to stop paying his mortgage because "the bank would get its money anyway".

The job didn't eventuate, his old employer wouldn't have him back because he hadn't given notice and the house didn't sell. By ignoring letters and calls from the bank, the client had sealed his own fate.

Royle heard of the sorry tale only after the ASB, which had taken all the right steps to contact its client, had sent a Property Law Act letter.

Banks' credit control departments can be hard-nosed, says Royle. But they know that a mortgagee sale is in no one's best interests and leaves a nasty taste.

If the client had front-footed the situation, he would have kept his house.

Royle says mortgage brokers can do the legwork for you when problems arise. But home owners who anticipate trouble paying their mortgage can also contact the bank directly if they choose.

It's a matter of phoning the call centre and the staff members will put you through to the credit control team.

That team will ask a lot of questions and want paperwork for Africa. However, they can, and do, help clients get through sticky patches. "Have everything to hand when you call," says Royle.