There are certain things that home owners can do when faced with the prospect of defaulting on their home loans, three of which are outlined in the following paragraphs.

Inquire about refinancing options

The best home loan providers are willing to work with their customers in order to help them make the necessary payments on their home. After all, banks and lenders are in position to lose a lot of money if the home owner defaults on their mortgage, so it behoves all parties involved to reach a mutually beneficial resolution. This is why any home owner who is in threat of default should arrange to meet with their provider in order to consider refinancing options. These options may include restructuring in to a fixed rate loan, segueing in to a variable rate loan (if interest rates are currently lower than the owner’s projected fixed rate) or extending the term of the mortgage. Extending the term can help the owner stretch their outstanding balance over a greater number of months, thereby reducing their monthly obligations. This can have the positive effect of making their mortgage more affordable and increasing the chances that they will not default on their loan.

Rent space in the home or on the land

Renting space in the home or on the land may not work for all home owners. The success of this option depends on how much space is going unused, and not all home owners have a lot of extra space that can be taken advantage of. For instance, a condominium owner may have a bedroom they can rent out, but if they own a one-bedroom unit then they will have few rental options available. A home owner in a crowded suburb may have a basement, attic, spare bedroom or garage to lease, but they will probably have no extra land. But what they do have can make them extra money if they are willing to receive tenants in to the unoccupied space. Many home owners may be reluctant to follow this course of action as it means taking strangers in to their home, but with a proper vetting process in place they can minimise their worry about undesirable tenants. They may also keep their home in their possession at the same time.

Move to shortsell the property

If the owner’s attempts to refinance or rent out open space in their home fail to bear fruit, they can always move to shortsell the property. A short sell is the process of putting one’s house on the market for less than it is worth in order to motivate buyers to purchase it and accelerate the transfer of property. Banks prefer shortsells because they will make back more of their money than they would with an outright foreclosure. Owners benefit from shortsells because they get out from under their mortgage responsibility and ding their credit scores considerably less than they would through default. One other advantage to a short sale is that they tend to move much faster than a regular sale since the house is priced below value. This works in favour of both the seller by allowing them to be absolved of their repayment duties sooner.

The deregulation will bring Queensland up to speed with the rest of the country, where real estate commissions have been free from government oversight. The Queensland regulation was initiated by the Property Agents and Motor Dealers Act and Regulation of 2000 and 2001, respectively.

The law in Queensland states that all real estate commissions are to be maxed at 5 per cent of the initial $18,000 with 2.5 per cent commission applied to the remainder of the closing price. The transition away from a commission cap is part of the Queensland government’s efforts to modernise the state with the rest of Australia, according to Paul Lucas, the Deputy Premier and Attorney General of Queensland.

Mr. Lucas cited the analysis, critiquing Queensland’s supervision of agent commissions, as well as the backing of the industry as a whole in contributing to the decision. Pamela Bennett, Chairman of the Real Estate Industry Queensland, lauded the move and noted that REIQ has championed just such a cause for a number of years.

Ms. Bennett pointed out that residential properties struggled with commissions, which were well below the industry average due to the regulation. The unintended consequence of the governmental oversight produced few advantages for those purchasing real estate.

The current commission structure is not expected to change in practice, Ms. Bennett noted. She did cite the exception of premium service resulting in higher-priced commissions as agreed upon by the parties involved. The market will also have an influence on price, whereas before it was trumped by the government.

A further benefit to property buyers will come in the form of an expanded customisation in the services provided by real estate agents. The customisation can be adjusted according to variables of the buyer’s choosing, resulting in higher commissions for agents and a greater level of customer service for buyers.

Should a dispute arise between agent and customer regarding the price of a commission, Mr. Lucas explained, the Queensland Civil and Administrative Tribunal has the right to step in and adjudicate the matter accordingly. He also clarified that QCAT’s services will operate fairly and equally with agents, sellers and buyers.

In 2007, rentals of $400 per week comprised no more than 20 per cent of the entire rental sector. Since that time, however, the cost of renting has continued to soar upwards. As a result, more than 40 per cent of prospective tenants now say that they have no choice but to consider the more expensive rent class.

Tenants are also looking for living space in the range of $300 to $400 per week more than ever before, posting a 25 per cent increase in the last four years. Research on these figures was conducted by realestate.com.au.

Realestate.com.au polled nearly 3000 people during the months of January and February of 2011. Their findings showed a struggling rental community where 80 per cent of people had to shop around for at least eight weeks before landing a place to live. If customers were looking to buy, most choose to compare home loans.

The anaemic supply of rental properties has extended into the suburbs as well. In fact, the findings by realestate.com.au show that the suburbs are even harder hit than Sydney proper. In Bondi, for instance, rental properties posted by RUN Property, a real estate agency local to the city, revealed a paltry four properties available out of a complete listing of 1100.

Kogarah recorded the largest increases in rent for new contracts, according to RUN, coming in at 15 per cent. On Kogarah’s heels was Rose Bay at 13 per cent and Glebe with a 12 per cent spike.

Out of desperation to find a home, nearly one-third of applicants have begun volunteering to pay more rent. Others were willing to post money in advance, including the first month’s rent as a guaranteed deposit.

The make-up of the available pool of tenants has also moved away from tradition. Residents aged 35 to 49 have taken to renting more now than before, claiming at least 31 per cent of the market. Renting has offered this demographic the opportunity to save money on a monthly basis that can then be funnelled in to investments. Young people between 18 and 24 years old are leaving the rental game, choosing their parent’s houses in an effort to save money and build up for a down payment on a home of their own.

Another telling number symptomatic of the Sydney crisis is the increase in one of the priciest rental market. Properties of $100,000 and beyond increased 10 per cent, an addition that has led to a total market share of over 30 per cent of rentals.

Reason #1: The property needs repair

A buyer can be pre-approved for a home loan only to have it come to a halt if it is learned that the property that they intend to buy is in need of major repairs. This does not apply simply to loose shingles on the roof, old and unsightly siding or an interior that could use a fresh coat of paint. Rather, this has to do with foundational and structural deficiencies in the house itself or major problem areas in the property around the liveable space. If a bank or lender finds any reason why the home buyer might vacate the property before their loan contract is fulfilled, they will reject the application.

Reason #2: The buyer’s debt

If the home buyer has too many open lines of credit, there is a very good chance their lender will void their home loan application. This is standard practice with the best home loan providers, but it may confuse a buyer when they have already been pre-approved. Pre-approval is based on a limited amount of information at the lender’s disposal prior to receiving a formal mortgage application. Once the buyer has been pre-approved, they then proceed to furnish detailed documentation, complete with financial history. If there are any big surprises in the new information provided by the buyer that the lender does not like, such as carrying too much debt, then they will refuse the loan.

Reason #3: Being late to supply documentation

Mountains of paperwork are involved in applying for a home loan to begin with, and it is very common for lenders to request additional documentation that the buyer did not anticipate. Occasionally, such a request can come when the buyer does not have a lot of time to do the research or the organisation necessary to send the paperwork to the lender in a timely manner. As long as the buyer makes a concerted effort to furnish the appropriate documentation, most lenders will work with the buyer in keeping their loan application alive. However, some buyers do not place a priority on getting extra paperwork to their lenders, and if the lender is made to wait too long, they can cancel the buyer’s loan as a result.

Reason #4: Lost or reduced income

If the buyer loses their income or has it reduced at any time during the home loan application process, most banks and lenders will either temporarily suspend their mortgage application or reject it outright. This especially applies to self-employed home buyers whose income experiences peaks and valleys throughout the year. Even a lay-off that promises a return to one’s job later in the year can disqualify a buyer from obtaining a mortgage. Regardless of the reason why or the field in which the home buyer works, losing one’s income, either in part or in whole, is cause enough for a lender to refuse the buyer’s application.

Rising Rates and Concern

There has been some concern by Australian banks because of the increase in late mortgage payment and default loans. There are many factors that may contribute to this growing trend of late or default mortgages. The increase in insurance premiums and the cost of policies does contribute heavily to the difficulty paying for the home. Interest rates on loans are expected to rise for the second time in a 12 month time frame. This puts additional financial pressure on home owners.

Interestingly enough, despite the unpredictable economy there was an increase in first time home buyers in late 2010 and early 2011. The down side is that these new home buyers who accepted grants and first time home buyer incentives are most vulnerable to the change in payment arrangements that are sure to come. Some will realize that their loans are more than they can afford as the rates continue to rise. Some home owners will turn to the credit card when money gets tight.

There is an anticipated change in the official cash rate in Australia which in turn may increase the number of default mortgages in upcoming months. Given all of these looming issues economists are still hopeful that the mortgage loans that are in trouble will not be significant enough to cause extensive damage to the market. All too often people look to the quickest easiest fix to make that mortgage calculator payment. This quick fix can prove to be dangerous especially if it comes in plastic form.

Pros and Cons of the Plastic

It is true that desperate times call for desperate measures. The last thing people want is to default on their mortgage so in times of need such as illness, job loss or piling debt many people take short cuts to pay the bills for this month and worry about next month later. The danger in that is that next month usually comes all too quickly and people still find that they are in the same situation. Eventually the debt piles up and leads to a downward spiral. For some using the plastic is the quickest path to default, for others using the card can be money saving plan.

Pulling out the plastic to pay for this month’s mortgage is an option but not always the best option unless you are very careful about how you do it. If you do use a card you will want to ensure that you have the money to pay your credit card bill in full when it is due or you can rack up countless fees and charges that will result in more debt.

There are certain credit cards that do allow you to set up a plan to pay your monthly mortgage using your credit card without fee, interest or credit card reward points. Some have found the perfect card that lets you make a payment a month in advance without racking up additional charges. For those individuals, using the card is like money in the bank. Using a credit card is a viable option but the catch is to be deliberate about using your card rather than using it out of desperation.

In the last three months of 2010, at least half of all commercial real estate purchases for Australia took place in Victoria. The state compiled more than $2 billion in real estate transactions for the industrial, office and retail markets, representing a $900 million increase since 2009. Both New South Wales and Queensland seized 15 per cent of commercial property sales for a grand sum of $1.3 billion. In a distant third was the Northern Territory at $300 million, or roughly 7 per cent.

These figures came about concurrent with the overall 11 per cent decrease in commercial real estate purchases for the same period. Across all states, the $4.5 billion sale total was, nevertheless, two-thirds greater than the numbers from the last quarter of 2009. In fact, the commercial property sector throughout the country for 2010 was robust compared to the previous year. The total for 2010 revealed a 74 per cent jump, or more than $16 billion in commercial real estate sales, according to DTZ. [To work out your repayments, use our home loan calculator]

David Green Morgan, head of research in the Asia-Pacific division of DTZ, noted that many market experts are now considering the commercial real estate sector to have bounced back from its slump, becoming one of the elite markets in the Asia Pacific region. This success has been spurred on by many international investors who like what they see in the Australian economy.

DTZ is also predicting that Victoria will continue to claim the top spot in Australian commercial property sales throughout the year, with Melbourne retaining its position as the most sought after location. Western Australia and Queensland are projected to have an increase in investment as well, according to DTZ.

Additionally, the industrial sector for 2010 saw Melbourne become its most popular market. DTZ believes that total returns for the industrial sector in Melbourne over the next five years will amount to roughly 11 per cent annually.

Many market experts feel that a similar collapse could happen in Australia, or that it is only a matter of time before it does. With employment at nearly 100 per cent and trade doing better than ever, the opportunity for a housing market bubble to take shape in Australia is minimal for at least the foreseeable future.

The latest figures on home loan applications reveal a caution and a hesitation that has led to choosiness with regards to the home loans which are now deemed worthy of consumers’ time and money. It also shows that the slumping housing market is turning people away from assuming debt on loans with higher interest rates.

Market experts expected an increase in home loan approvals for March in the neighbourhood of 2.3 per cent. The latest statistics for March, however, pointed to a drop of 1.5 per cent, the lowest percentage in ten years.

If real estate continues to decelerate at its current rate, not only would it upturn the Australian economy on its head, but it will also likely wreak havoc on the four major banks. The four majors are extremely dependent on the residential housing market, with some estimates putting at least 60 per cent of their profits off of mortgages.

An acute plunge in home loan applications and mortgage delinquencies could ravage the banks’ bottom lines and send them into a financial free-fall of their own. This led the chief executives from each of the four major banks to advise the Reserve Bank on how further increases in interest rates could negatively affect their business.

Some financial pundits are projecting anywhere from one to three more interest rate hikes by end of year 2011. The Australian real estate market could be a ticking time bomb waiting to explode, especially if two or more hikes are realised.

In the month of April 2011, successful home loan applications spiked to over 47,000. This constitutes a jump of 4.8 per cent from March 2011 as well as the largest upswing in more than 24 months. It is also the first time in 2011 that finance for housing has seen any signs of expansion after a disappointing first quarter.

In November 2010, the Reserve Bank raised interest rates, which was an unpopular move that helped produce sluggish numbers regarding to construction of new homes, devaluations in property prices and buyer disengagement from the market. Furthermore, the onset of severe weather-related devastation in certain states only served to assist the market’s plunge.

The Australian Bureau of Statistics recently detailed a report which revealed Queensland as one of the clear winners in April when it came to property financing. Home loan acceptance in the state grew by 6.2 per cent. Both Western Australia and Victoria posted considerable jumps in new home loan activity, too, but no state quite compared to the ACT. There the rise in home loan approvals jumped by nearly 9 per cent in the month of April alone.

What is perhaps more surprising is the fact that fixed rate home loans have begun trending downward, another sign that consumers are feeling more comfortable with steadier interest rates. Fixed rate loans comprised merely 5.6 per cent of all new mortgages in April 2011; a 1.2 per cent drop from the month before.

It remains to be seen how the Reserve Bank’s recent public statements about potential interest rate hikes by year’s end will affect consumer confidence. The growth of the natural resources sector has raised fears that inflation could soon set in, necessitating one or more increases in the interest rate, according to financial experts.

John Peters, the senior economist for the Commonwealth Bank of Australia, confirmed that this most recent information was proof positive of a growing Australian economy. He went on to predict that the first interest rate hike of the year may be enacted as soon as the end of July 2011.

The area of New South Wales with the poorest repayment performance is Nelson Bay near Newcastle. According to a study conducted by Fitch Ratings, one out of 18 home owners find themselves at a minimum of one cycle past due. That is a rate of 5.6 per cent.

A survey by Fitch Ratings also found Fairfield-Liverpool to be the worst-performing region in the nation, having one in 35 mortgages at least a month past due. Of the top ten regions with the worst delinquency rates in all of Australia, New South Wales boasts five within its borders.

Fitch Ratings looked at mortgages supported by securities rather than deposit-backed home loans. This translates into over one million home loans under survey that primarily consist of lenders outside of the Big Four banks. In fact, few Big Four home loans are included in the study by comparison.

One important contributing factor that the Fitch report identified was the impact that the floods had on home owners in New South Wales. They were also quick to point out that despite such a natural disaster, evidence suggests that delinquencies would likely have risen in NSW regardless in light of the fact that they have increased in every other state.

JPMorgan issued its own statement claiming the market saturation which occurred after the drastic slashing of interest rates in 2009 has led to the current bevy of mortgages in arrears. Rates had been severely reduced in response to the worldwide economic downturn. JPMorgan also noted that the raise in the new home owner’s grant around the same time also assisted in spurring home sales. Of all delinquent home loans, at least 20 per cent is comprised of loans arranged or modified in 2009.

Furthermore, JPMorgan expects delinquencies to continue their climb in the coming months, as the possibility of additional interest rate hikes loom large on the horizon. They also warn that interest rates may force those compare home loans of 2009 to surpass the level of affordability that was calculated at the initiation of the loans.

Then why do so many first time home buyers go with the first home loan that is offered to them?

Clearly, they must not realize how many choices are out there. Just as there are a plethora of homes on the market, there are just as many types of home loans. Know how to get the best home loan before approaching lenders and beginning the application process.

Determine Your Budget

The first step on the rewarding journey to home ownership is to figure out how much you can actually spend. Sit down and take an honest look at your finances. Compare how much you earn per month versus what you spend on monthly expenses. Do the math and figure out how much money is left over when all is said and done. Once you have a good idea of what you have to work with, think about the future. Are you planning to start a family? Do you have hopes of opening your own business? Are you happy in your job and can you imagine still doing it in ten years? It’s important to think ahead as most people spend many years paying off their homes. Be sure you have enough money now, and later.

Many people skip this step, start looking for houses without knowing their ceiling, and end up buying a house they simply cannot afford. Don’t let this be you.

Research Interest Rates

Interest rates can change on a daily basis. Take a look online and you will see different rates from different Australian banks on any given day. Be sure to consider the following types of home loans:

• Fixed Rate Loan: This type of loan allows you to lock in a certain interest rate for one to ten years.
• Variable Loan: The interest rate will go up and down along with the market if you get a variable loan.

If you are unable to decide between fixed or variable, you can usually opt for a split loan, where part of your best mortgage is fixed and part is variable. Be sure to ask your lender if there are discounted rates – special deals offered to individuals borrowing large sums of money. Remember, sometimes, once you examine all of the facets of a particular loan, the lowest interest rate is not always the best.

Repayments

When you take out a home loan, you will need to make monthly repayments to your lender. But did you know, that if you pay bi-weekly, or even on a weekly basis, you can eliminate years of interest? Not to mention making your monthly budgeting a little easier by making smaller payments on the weeks when you receive your paycheck!

Down payment and Mortgage Insurance

Mortgage insurance is what a lender requires if you do not have a large down payment. This is generally added on to your monthly repayment costs. If you have enough money for a good-sized down payment – usually 20 percent of what the house costs – you can avoid having to pay mortgage insurance. Starting with a nice down payment also means a lower monthly repayment amount.