What if you can't pay off

[ourhouse]

G'day all,
I'm new to Australia so pardon my ignorance. Just trying to understand what happens if you take a 15 yr loan and suddenly after 2 yrs crisis hits and you can't repay the loan back. Some scenarios of such crisis can be that you lose your job, main earner dies, you need to leave Australia immediately due to some family reasons, etc

What options you as property owner of such partially paid-off property have, such that you incur minimum loss on your investment.

Sorry for such a gloomy thread but I want to understand what happens in worst case

 

[alexlee]

If you really can't make repayments, the bank takes the property, sells it, and you get what's left, if any. If selling the property doesn't cover the loan, you're on the hook for the remainder. They might garnish your wages, for example.

This risk is obviously greatest nearer the start of the loan. A few years into the loan, your wages are probably higher, you've paid some extra into the loan, and the property may have gone up.

 

[Perp]

If the ability to repay is only temporarily impaired, you may qualify for a break in or reduction of payments for a time under the hardship provisions.

There are universal requirements under the Consumer Credit Code for lenders to act "reasonably" in considering requests for a contract amendment in cases of financial difficulty, and this can be enforced via the Financial Industry Ombudsman.

http://fos.org.au/centric/home_page/resolving_disputes/financial_difficulty.jsp

Additionally, many institutions have their own hardship policies, which you should check out.

 

[The Y-man]

Some scenarios of such crisis can be...main earner dies
...

Make sure the main earner has enought life insurance to set the others up for life (i.e. pay off most of the loans)

..lose your job....you need to leave Australia immediately due to some family reasons, etc

By these I suspect you mean can't make the interest payments rather than "pay off" the loan.

Banks have various ways in which repayments can be defered (at a cost of course) etc. Talk to your lender.


Part of your risk management as an investor:

1. Consider not gearing too high - Keep a truly honest sense on what it takes to service your loan. If you decide to borrow beyond the "red line" (where "normal" lenders stop lending to you) - there is a reason they stop - it's not because they're *******s - they see a risk. When borrowing you have to actively understand that if you go beyond the red line, you could lose the lot. If crap happens and you lose the lot, be content that you knew the risk, took it anyway, and it just didn't work out - move on.

2. Insurance - Consider life/TPD and income protection

3. Other finance sources for emergencies - credit cards, personal loans, family and friends, if only to tide you over a few months

etc.

Remember - in most cases you can not eliminate risk - but you can identify, then choose to reduce or accept.

The Y-man

 

[ourhouse]

Great insight, thanks. I think now I understand what to do to cover the crisis part. Now lets take relocation scenario

I'm reluctant to buy a house because due the nature of my job, I sometime have to change cities, countries. Normally I've changed a city or country every 3 or 4 years in past 15 years. But I'm fed up being a renter and want to buy my own now in Melbourne.

Can you share some tips as how to get the best out of your 'under-loan' PPoR when you decide to relocate and plan to sell it.

 

[alexlee]

One option is to just keep it and rent it out as an investment property.

 

[The Y-man]

Can you share some tips as how to get the best out of your 'under-loan' PPoR when you decide to relocate and plan to sell it.

I suggest the property you buy is

1. "ordinary" - very ordinary. It makes it generally attractive to the largest group of people when it comes to selling. This is also comes down to location too. It is not everyone's dream to live next door to Macdonalds.

2. "cheaper" end of that particular market - again maximise the potential demographics you can sell to.

3. Suitable for the majority demographic of the area - goes with point 1, but no use buying an apartment where 90% of the residents in the area live in a house with a backyard.

The best thing is - when you sell, the "profit" is not taxed

Cheers,

The Y-man

 

[Sheryn]

Can you share some tips as how to get the best out of your 'under-loan' PPoR when you decide to relocate and plan to sell it.

Note - The plan is not to sell when you relocate.


Talk to a few mortgage brokers on this forum and get some ideas of them about waht is doable with your financial situation or you can post your yearly wage and savingss so far on here eg Earn 60K Savings 50K.

1. Buy PPOR put down minimum deposit & Interest only offset account loan
2. Put all of your saving in offset account and interest is taken out of this account each month.
3. Relocate to next job location and rent out PPOR, get depreciation schedule done
4. Take excess money out of offset account and apply for a loan in new location for another PPOR.
5. Ist PPOR becomes IP No1 and you claim tax deductions as a rental.

If you have to relocate again then 2nd PPOR becomes IP No 2 and you claim tax deductions.


Cheers
Sheryn

 

[RumpledElf]

1. "ordinary" - very ordinary. It makes it generally attractive to the largest group of people when it comes to selling. This is also comes down to location too. It is not everyone's dream to live next door to Macdonalds.

Are you saying that my cookie-cutter-clone cottage in the most common heritage green colour scheme on the outside beige-and-white on the inside with ye olde English cottage garden full of pink daisies and roses on a boringly quiet street is a *good* thing? (we did choose the colour scheme and plant the garden with this in mind, admittedly)

All I need now is some retirees/young couple/small family who want to live the cliched cute country cottage dream at a reasonable price. Then we get to be mortgage free

 

[shaebrown]

currency trading

I suggest selling your property and repaying the loan amount is the best option because instead of paying interests for months it will be quite difficult for you to meet your daily needs...
If in case you are not having any property then working anywhere at low wages and repaying loan amount is last option..