How to avoid defaulting on your mortgage

It was a phenomenon that Australia was lucky to see only rarely- the ghost towns of houses that people just had to leave, unable to pay their mortgage and unable to sell it on. Here in Australia, we were spared the tragedy of foreclosure but its effect in America is hard to comprehend from over here. A friend of mine from Stockton, California, talks of the street her parents live in where one in three houses have been abandoned.

It’s a sad warning. Instead of the security owning your own home is meant to bring, you are left financially crippled. Although we are mostly safe from this fate in Australia, here are some tips from Finance Tips 101 about how avoid losing your home.

Re-evaluate debt

As soon as the worst of the GFC was over, we all sighed relief and returned to our ordinary lives, ordinary spending, ordinary debts. But for those months, our money went into savings and paying down debt. Try to not leave yourself that exposed for the next time the market spirals down. Paying down debt, and reducing expenses is as important in good times as bad, and will always stand you in good stead.

Talk to your lender

Nothing in this world is fixed. Just as a stable stockmarket is the stuff of fairytales, the flipside of an unflinching and unrelenting lender is not always the case. The lender would much prefer to get their money back in the long run as opposed to getting no money at all. Despite how it seems, you are in a position to negotiate.

Don’t fall prey

If something sounds too good to be true, generally it is. There are people out there who will take advantage of your desperation. Don’t let them. Don’t sign any documents that give other people control of your house or your money. It may sound like something you would never do, but add some desperation to that mix and it could be an entirely different story. If in doubt, ask a lawyer. It’ll be money well spent in the long run.

Know your rights

Leaving your home is the absolute last step. Read through all your contracts, and talk to people about what your options are. Lawyers, people in the housing public service, personal finance advisors; all these people are there who can help you. Staying informed may be the difference between staying in your home, and having to leave.

Keep up to date

This is not a problem only affecting you. People have flown too close to the sun, hoping interest rates would stay at 3% forever. If you’ve got troubles paying your mortgage or have lost your job, make sure you know what the latest initiatives of the government are.

Protect

Think about income protection. While things are improving, it’s easy to get relaxed about employment. There’s no need to stress, but if your mortgage is tight while employed, think about insuring your income and saving up an emergency fund to help you through unemployment should it happen to you.

Support

Find people who can support you through this time. It’s an awful thing to happen, and it’ll be all the harder if done alone. There’s always help, it’s just a question of asking for it.

What steps have you taken to prevent defaulting on your mortgage?

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