What Can I Do When I Am Stuck in a Mortgage Prison?

LMortgagePrisoner on 04/07/2020 - 16:12

Hi everybody,

I'm looking for some advice as I don't really know what to do. I currently have 2 loans with ANZ for ~$300k + ~$300k = ~$600k owner occupied (25 + 5 years interest only). They are charging me 4.37% for the home loan part, and 5.34% for the business loan, although both loans are classified as a business product. I initially took out the second loan to move locations for my business. For the past few years I have been trying to get a better rate from ANZ however they have repeatedly stated that the rate they have given me is already their best rate. I haven't had any success trying to switch lenders either as I couldn't pass serviceability due to the business performance at the time of application.

Unfortunately, for a number of reasons the business had collapsed and it has been very difficult trying to find work given the pandemic. My loans are changing from interest only to principal + interest this month which will make it even more challenging to manage. I've applied for a mortgage holiday a few months back which was granted but that ends in September.

Compared to the market rates, I'm paying almost double in interest charges. I'm extremely concerned that I won't be able to service the loans at 4.37% & 5.34%, yet there appears to be nothing I can do to reduce the interest rates either.

Is there any way out of mortgage prison?

Financial

Comments

  • whooah1979 on 04/07/2020 - 16:27
    +40

    Is there any way out of mortgage prison?

    Big loan and no job. Perhaps it's time to sell?

  • thatonethere on 04/07/2020 - 16:40
    +13

    Go see a financial advisor. Worst case bankruptcy might be an option.

    • vikvance on 04/07/2020 - 16:48
      +1

      This!

      It's not that easy for the Banks to throw someone out of their own home.

      • Zachary on 07/07/2020 - 22:59

        actually it's pretty easy considering they own his houses since they're not fully paid off yet….

    • Ghost47 on 04/07/2020 - 18:08
      +1

      Good idea.

  • CyberMurning on 04/07/2020 - 16:40
    +5

    Sell. Save more. Avoid impulse buying from ozb

  • kahn on 04/07/2020 - 16:44
    +6

    Speak to a lawyer about applying for mortgage parole.

    • MinifiguresAU on 06/07/2020 - 16:53
      +1

      If anyone can, you Kahn.

      • Boogerman on 06/07/2020 - 20:51

        Rocky & Bulwinkle!!

  • Shadowsfury on 04/07/2020 - 16:47
    +7

    They might be secured by your home but they're business loans so probably veiwed as more risky - thus you can't compare to the rate you might be able to get starting with a 2 if it was a regular home loan (whether for OO or investment)

    You might need to look into selling IMO.

  • RiseAndRuin on 04/07/2020 - 16:48

    It's tough right now, but try to rent out a bedroom (or more) if that's an option.

  • brendanm on 04/07/2020 - 16:54

    What's the property worth? Realistically in the current market.

    • MortgagePrisoner on 04/07/2020 - 17:37
      +1

      Online estimates come in at $822k with high confidence. Given the current market conditions, perhaps $750k?

      • acersaurus on 06/07/2020 - 15:16
        +5

        If that price you could sell and get 120k after agents fees/other fees.

        Not knowing every detail of your situation, I would likely sell ASAP then try to take advantage of the current lower priced rental property market. You have this window to do it now before September.

        Due to the levels of interest on your loan, if you cannot negotiate them way down then selling appears to be a better option than renting out your property.

        You aren't a prisoner, a prisoner is someone who has no options.

  • inherentchoice on 04/07/2020 - 17:39

    Rent out your property. Move into something smaller and much cheaper than the rent your property is earning.

    • Ughhh on 04/07/2020 - 21:38
      +5

      Rent out your property

      Assuming the tenant will actually pay you decent/agreed rent. Otherwise you're paying to rent another property while giving free rent to others.

  • Kinko82 on 04/07/2020 - 17:53

    For your home loan, it depends on the product you have. Interest only loans have a higher rate than principle and interest. Investment loan has higher rate than owner occupied home loan.
    Since you can't refinance to another bank. You should consider fixing your residential loan for 2.29 for 2 or 3 years. These are competitive fix rates so you're not missing out too much. Lowest fix rate is 2.09.

    I can't comment about the business loan but you should enquire about possibility of switching products.

    This might help you reduce your min repayment on your loans.

    • MortgagePrisoner on 05/07/2020 - 14:55

      I'd be stoked if I could get those rates. I will certainly raise the conversation with the bank to see if we can switch products.

  • pantsparty on 04/07/2020 - 18:40
    +1

    Other people have already said this but sell the property? I know this isn’t ideal but it sounds like you may be running out of options and at least this way you will stay in control of the situation

  • netjock on 04/07/2020 - 18:48
    +7

    Sell the property.

    Problem is no job means zero cash flow = zero chance of getting a loan.

    You are not the only one in this situation, can see a lot of this happening going forward. Don't take it too hard, if it wasn't COVID then it would have been something else. We were due for a correction of some type.

    There will be smug people who will come and talk about how they sold out last year or years ago sitting on a mountain of cash.

    I would avoid trying to file for bankruptcy because it is 7 years on your file, it will stop you getting certain jobs with background / credit checks and if COVID does blow over this year or the next you won't get able to get a job as easily.

  • GuitarNeo on 04/07/2020 - 18:49

    Is the full 600K owing right now on 750-850 property? Are the loans only under your name/business name?
    A friend in similar condition went for line of credit through a dodgy broker which was much better interest rate then your current one. or Else fixed loan for 2 years for 1 X 300K loan.

    Good way to do is to make an excel sheet- gather all in comings and outgoings and see if its going to be viable by the end of the year. <== If the answer to this is no then consider selling and getting out of it before it becomes overwhelming and completely out of control. You already seem under a bit of stress and if you let the real estate agents make the decision for you in the end - they love taking advantage of such fire sales. Easy commission for them even if its below market value.

    Not sure of the area you are in but 750-800 properties dont get hit hard a lot.

  • Almost Banned on 04/07/2020 - 18:59
    -2

    You need to lodge a complaint with AFCA - whether you do it now or later is up to you.
    You may not have great grounds - it sounds like you are not exactly the ideal loan customer, but if you can come up with something this will serve two purposes:
    1. It will prevent the bank from taking any enforcement mechanisms until the complaint is resolved,
    2. It will force them to consider your position and look at options.
    Good luck.

    • garetz on 04/07/2020 - 20:02

      With the complaint you can argue unfair financial hardship exacerbated by the banks unwillingness to renegotiate the rate. That will get the banks attention.

      • miwahni on 04/07/2020 - 22:23
        +1

        If it was written as a business loan he may not have usual consumer credit protection, and AFCA may not be able to assist. Still worth investigating, though. Loan offer should clearly state whether it is covered by standard NCCP or not.

    • El-Rhi on 05/07/2020 - 07:56
      +1

      Good idea, prolong the inevitable and see the property value decline more… OP ends up in a worse situation (selling in 6-12 months for less rather than what he can get for it now) after AFCA throws out a dodgy complaint.

  • whooah1979 on 04/07/2020 - 19:49
    +3

    A friend in similar condition went for line of credit through a dodgy broker

    GFC 2.0.

    All we need now is a new round of dodgy loans to unemployment borrowers to add to a pandemic.

    • rgr on 06/07/2020 - 19:08

      they already have them - 5% deposit on first homes are available via scomo

  • Seraphin7 on 04/07/2020 - 19:59
    +3

    If things are as dire as you make them out to be, it's possibly time to sell up, consolidate back to cash and start again. Hard as it is to swallow, it's not just a smooth and seamless ride to the top, doubly so when you're in significant debt with limited income.

  • peterpeterpumpkin on 04/07/2020 - 20:50
    +2

    In Sydney's Eastern Suburbs the situation is even worse. Even with dropping rental prices the vacancies keep rising.

    The gamble now is knowing what will happen in September and how flooded the house market might be. If thousands upon thousands of houses go up for sale with the current job outlook it might drive the prices lower than the already slightly lower market rate. I'm just going with the flow. Might win this game of Monopoly in another life.

    • kiitos on 05/07/2020 - 14:49
      +1

      Is this likely? Or would the govt step in to cushion the market?

      • peterpeterpumpkin on 05/07/2020 - 16:07
        +2

        I don't know. Some of the banks have offered 1 year interest only for people on P&I loans without proof of income, but the problem with investment loans is that the interest component for long-term customers is sometimes ridiculously higher anyway and forms the bulk of repayments in the middle part of a 30 year loan (first 10 interest only). It's ironic that if these people refinanced at "current market rates" with another bank on interest only they could probably afford to rent it out at a much cheaper rate and keep the property.

        Since Australia is a country where people tie up their wealth in personal and investment properties the government would be watching this space very closely but who knows what they're planning? In USD, a lot of Australians are already poorer than they were in 2012 despite "paying off" their property for 8 years with actual labour…

      • Drakesy on 06/07/2020 - 14:01
        +1

        I think the reserve bank and government ran out of options to cushion the market when they failed to raise interest rates as the price of homes in Melbourne and Sydney took off, much to the pleasure of banks AKA major party donators.

        This left them with very little wiggle room when they finally needed to lower rates (negative interest rates aren't viable as this will cause the property boom 2.0) and pensioners will have a fit.

        Stimulus measures such as the $25,000 grants etc are not worth the paper they're written on with all subsidies just being eaten up by the developers/tradies - this happened overnight in WA

        I think the government just has to let it fall, ultimately its overweight, with the economy struggling pre-covid there doesn't seem much light at the end of the tunnel.

    • WreckTangle on 05/07/2020 - 09:18
      +2

      This is illegal so probably not the best idea hey

      • Zachary on 07/07/2020 - 23:03

        not exactly illegal….one guy did it when he was scamming people (It was all over the news a few years ago) and bought all these properties and then transferred everything to his wife's name and then declared bankruptcy. According to the law, this very quite legal but since he's got $0 to his name, he cannot owe anything. He's probably living the rich life with all those assets under his wife's name….until his wife leaves him for another man….in which gg for him….

    • capslock on 05/07/2020 - 09:33

      Bankruptcy limits one's options for years to come like starting a new company, obtaining credit and earning an average income without handing some of it over to creditors. Not to mention being forever known as a 'former bankrupt'.

      • mbck on 05/07/2020 - 09:44

        Thats what I thought. Bankruptcy will be there permanently

        • whooah1979 on 05/07/2020 - 09:49
          -3

          Former bankrupt because of covid isn’t a big deal. Anyone that is old enough to remember this pandemic will understand.

          • mbck on 05/07/2020 - 09:51

            @whooah1979: True, but in the future, a bank will be a bank. And if you were a bankrupt, that would still have some impact. How much, I don't know.

            In saying that, if that's what needs to happen now, then that's an option

          • brad1-8tsi on 06/07/2020 - 12:44

            @whooah1979:

            Anyone that is old enough to remember this pandemic will understand.

            Do you think so? So does that mean that people that don't go bankrupt during this period get extra Brownie Points?

    • diceman99 on 06/07/2020 - 15:46

      They can stil chase your wife for the money for three years as it was not a proper commercial transaction

  • CSR on 05/07/2020 - 08:22
    +9

    Maybe give these guys a call. I've heard the Barefoot Investor direct people to them. Possibly more structured advice than you might get through OZB.
    National Debt Helpline
    https://ndh.org.au/

  • capslock on 05/07/2020 - 08:27
    -4

    Increase your income - get a high paying job and rent out your house. Reduce your expenses - live rent free with family and cancel all credit cards. Then refinance all of your debt into a lower interest home loan. It will be a miserable existence for a little while but at least you get to keep your house.

    Alternatively, take the stress out of servicing the debt by selling your house. You never know, you might be able to buy it back later for an even lower price.

  • TJL on 05/07/2020 - 09:32

    Suggest you speak to a financial counsellor for some guidance. We wary of the advisors/consultants and their advertisements which promise you this and that. Seek guidance from several sources and then decide yourself what is the best option for you. Don't fall into the trap of taking the word of the first advisor/consultant you contact as you may end up in a worse position than before. Good luck!

  • HiDave on 05/07/2020 - 10:09

    Assuming you can do similar to Resi mortgages,
    Here's loads of Corona tips you can use to buy yourself time:

    (In ALL steps claim 'Corona' as the sole cause)

    Find better rates on comparison websites
    Call / Walk into your bank and ask for a more competitive variable rate
    Then again for an even better one year fixed rate
    Then put morts on hold for six months
    Ask for Interest Only payments

    Repeat with Credit Cards
    Balance Transfer them to 0%
    Then request to have no repayments for six months

    All are possible with the big banks, I've helped people do this in the past few months, even this week.

    • whooah1979 on 05/07/2020 - 10:55

      What op really need is a job and not hold on to a sinkhole.

  • Waltervp on 05/07/2020 - 10:11
    +10

    I had to rent out two of my bedrooms to young people. It seriously helps me pay my mortgage and as much as I prefer the home to myself this is what I need to do right now. It took quite a few people to find the right guys, but it was a pleasure having them all. Some were overseas backpackers. Mostly people stay for 3-9months but I charge weekly in case my/their situation changes. As they are furnished rooms it is easy for them to move in and out…. Worth considering as a band-aid solution for now!

  • Choc0 on 05/07/2020 - 13:14
    +1

    Independent financial advice is always the best way to go. Talk to someone who can weigh up your personal circumstances and goals and come up with the right strategy.

    • rickb on 06/07/2020 - 13:54

      ^^^ This

  • OzHunterNSW on 05/07/2020 - 17:29
    +1

    Sold the myth of chase freedom by indebted Uni fees and mortgage finding yourself in a job not expected and unable, too battered, to try again… welcome to the world of paid slavery

  • 82norm on 05/07/2020 - 18:02
    +2

    On another note….. try to stay positive an not let it it mentally and emotionally consume you. Keep talking to people for ideas/solutions. You’ll come out of this, maybe a little poorer, but infinitely much wiser an stronger.

  • sareth on 05/07/2020 - 23:19

    Be incredibly grateful that you have the opportunity to sell at a profit.

  • Drakesy on 06/07/2020 - 13:54

    IMHO if you can't re-finance Sell or downsize the property asap, cut your losses as your position doesn't sound particularly sustainable.Come September's jobkeeper finish date i feel other investors/workers who were only just staying afloat will be in a similar position, resulting in an increase in supply on the property market. The economy isn't going to recover for a couple of years at least.

  • diceman99 on 06/07/2020 - 15:51

    Well all look back with 20, 20 vision in hindsight and say "Of course he should have done X or Y"

    Really depends if market goes up or down. I think its a toss of the coin at this point.

    The Market should go down, but thats not to say the Govt wont prop it up.

    The market can stay irrational longer than you can stay solvent.

  • darkly on 06/07/2020 - 15:55

    1. Speak to a real estate agent to get an idea of a sale price, as well as a rent price.

    2. Take that information to a financial advisor and get an idea of your options.

  • [Deactivated] on 06/07/2020 - 16:21

    lol dont bite off more than you can chew

  • TRANCE on 06/07/2020 - 16:34

    My investment home loan with ANZ is 4.19% on 300k, they wouldn't go lower, even though they can do 2.19% on an owner occupied loan. Why does an investment loan have a higher rate? You have more income coming in so it should be less risky for all involved, are banks just gouging investors or does it have to be higher to offset getting tax back on investments?

    • big on 06/07/2020 - 17:55

      Yes. The banks a gouging investors and small businesses. Even an equivalent term deposit has much lower returns for a small business than a retail investor.

      As per OP situation:
      Since it's owner occupied and the business has collapsed, perhaps they agree to consolidate the complete amount owed into
      a owner occupied home loan, which has according to their website an interest rate of 2.29%. As you don't have a business anymore,
      it should be hard for them to argue.

      However, if you struggle to repay interest and principle even on the lower rate selling as other suggested might indeed be a better option.

      THIS IS NOT FINANCIAL ADVISE.
      Might be better if you see one, helping you to deal with this situation and if required with the bank.

    • AntonChigurh on 06/07/2020 - 21:38

      The reality of why banks charge higher rates on investment loans is about to dawn. When everything hits the fan an investor is more likely to default on an investment loan and try and keep their own home.

    • od810 on 07/07/2020 - 11:38

      I assume you pay IO loan? If you are paying P&I you can get down to 2.64% fixed 3 year. If you can manage cash flow, go with P&I loan, it's much better for you in long run. Repayment IO Loan with 300K @ 4.19 ~ $1050, repayment for P&I (absolute ball park) @ 2.64 ~$650 interest + $830 principles. You pay about 40% more in term of repayment but you save 40% on interest.

  • demiurge on 06/07/2020 - 20:14

    If you have no income no amount of financial jiggling is going to get you out of it.

  • Slut on 09/07/2020 - 19:33

    You should have been using the deferral period as an opportunity to get ahead. IIRC ANZ allows the home loan term to be extended as part of the deferral - that means you should be using the six month deferral (and as recently announced, now ten months) to try to make ANY payments at all so that by the time the deferral ends, you're actually ahead of schedule.

    However unsure if this applies to your business loan.

  • echelon6 on 12/07/2020 - 09:36
    +1

    People telling you to sell or see a financial advisors are total noobs. What's a financial advisor gonna tell you? Sell, followed by a 3k invoice for the statement of advice. Terrible.

    The correct answer to your problem is go find a dodgy mortgage broker who has ways to falsify business income so you can refi to a competitive loan rate. Eg westpac 2yr fixed p&i investment is 2.59% at the moment.

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