Paying the mortgage when the job goes

The number of people facing home-loan foreclosure is set to double this year as those experiencing mortgage stress jumps 46 percent to nearly 1 million, according to Fujitsu Consulting.

The big culprit: jobs. The latest Australian Bureau of Statistics figures show the national unemployment rate rose to 4.5 percent in December 2008 and some pundits believe it could hit 7 percent by the end of 2009.

Roy Morgan Research believes the real unemployment rate is already closer to 6.5 percent and Standard & Poor's says home-loan arrears jumped 50 percent in the year to 2008, from roughly 1 percent to 1.6 percent.

Those feeling the pinch, or those who have already lost their jobs, need to act fast.

There are several options for the mortgage-stressed, depending on their financial situation.

The first step is to assess your financial position to determine which options are appropriate to your circumstances.

The most important thing to determine is your overall assets and liabilities. If your liabilities exceed your assets based on realistic market values, and your repayments exceed your income, then you are insolvent and your best option may be to apply for bankruptcy rather than borrow from Peter (particularly from relatives) to pay Paul. This at least will allow you to start with a clean slate.

If, however, the situation is not so dire, a number of short-term measures include (in order):

• Applying for state government mortgage assistance. These schemes are means-tested but can offer short-term relief for many home owners.
• Debt consolidation. Consolidating credit cards and other high-interest loans such as store cards and personal loans under a low-rate home-loan facility will immediately reduce your overall debt burden and the complexity of your financial affairs.
• Repaying credit cards as a priority should a consolidation option not be available.
• Applying to the bank to negotiate a hardship-based repayment scheme on your loan. Be sure to calculate any fees, the resulting loan term and the overall interest charged before committing. Banks can be forced in some instances to postpone repayments under the hardship provisions of the Uniform Consumer Credit Code.
• Assessing your home loan and canvassing the market for the lowest rate and best repayment terms, being sure to account for switching fees.
• Accessing the equity in your loan.

Once you know your financial position and you have assessed the above options, you need to estimate how long you can live off your capital before reaching insolvency or before the bank forces a sale.

Then it is time to develop a strict budget, slashing all non-essential household expenditure and finding new ways to save money. Shop around for cheaper insurance and telecommunications deals. Divide costs into weekly, monthly and annual costs and try to cut expenditure in each section by 25 percent. Internet sites like ninemsn have articles advising of ways to save money. See if any options apply to you.

Now that you are not working, you will have plenty of time to focus on this project. Avoid the shops if you go weak at the knees over a sale sign.

Then do a second estimate on the time available. This will allow you to establish a timeline and gain a realistic view of the gravity of your situation. For example, if you have not found a job after two months, you may decide to sell non-core assets. After four months, you may wish to put the house on the market.

Now look for a job. Update your résumé, consider retraining, register with recruitment agencies and companies, network with friends and acquaintances and actively search Internet job sites and the newspapers. Good luck!

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