What happens if you default on a home loan?

couple anxious about getting a default on their home loan

When you default on a loan, the bank will see you as a financial
liability and this could have negative effects on any future loan or credit applications.

When you take out a home loan (also known as a mortgage), you are committing to a big financial responsibility spread over many years. While at the time you may have been financially secure enough to buy a home, it is impossible to predict the future.

Even if you are prepared for emergency situations like loss of employment or sudden illness, emergency funds don’t last forever—especially when you are expected to make monthly payments of a couple thousand dollars. This may lead to defaulting on mortgage repayments.

What’s a mortgage default?

A mortgage default happens when you don’t pay your home loan on schedule. The loan becomes ‘on default’ one day after the payment is due. Typically, the lender won’t follow up about the missed payment until a couple days or weeks later. 

When you miss a mortgage repayment you are usually hit with a late fee which, depending on your lender, ranges from $9 to around $195. However, the late fee should be the least of your concerns when it comes to defaulting. When you default you run the risk of extending your mortgage due to the interest adding up.

What are the consequences of defaulting on your home loan?

Aside from being hit by late penalty fees and your overall interest on your loan increasing, by defaulting on your home loan you run hurting your credit rating.

If you miss several home loan repayments, you are at risk of losing your home. The lender may be forced to sell your house to protect themselves and recover any debt.

How do I avoid defaulting on my mortgage?

It is always good to prepare yourself for the worst. When looking at home loans, consider looking for a lender that offers repayment holiday features or something similar, just in case you run into some unforeseeable problems in the future.

Another thing to consider is to have an emergency fund that you can use towards your home loan in case of income loss. Plan for a fund that could cover your mortgage repayments for three to six months, that way you don’t run the risk of losing your home while looking for employment.

What can I do if I default my loan?

If you think you might default on a loan, typically it is best to contact your lender and let them know of the situation you are in. Your lender may give you advice on how to move forward with your financial situation. Depending on the lender, they may extend the term of the loan and reduce or delay repayments. It is important that you speak to your lender’s hardship team and apply for a hardship variation—which may help you make your loans more manageable by changing the terms of your mortgage.

If you’ve missed several repayments and your lender has sent a formal statement of claims or summon, then it is best to seek legal advice. Through Money Smart, you can find free legal advice in your state or territory.

Home loan comparisons on Mozo - rates updated daily

Search promoted home loans below or do a full Mozo database search. Advertiser disclosure.
  • placeholder
    Mozo Experts Choice 2021
    Smart Booster Home Loan

    2 Year Discounted Variable Rate, Owner Occupier, Principal & Interest, <80% LVR

    interest rate
    comparison rate
    Initial monthly repayment
    1.85% p.a.variable for 24 months and then 2.25% p.a. variable
    2.21% p.a.

    New super low introductory rate home loan for two years. Min 20% deposit. No monthly or ongoing fees. Fast settlement times. Mozo award-winning online lender. Friendly, local Australian based team.

    Go to site
    Details
  • placeholder
    Mozo Experts Choice 2021
    UHomeLoan

    Owner Occupier, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    1.85% p.a.
    fixed 3 years
    2.24% p.a.

    $0 fees and easy application. Choose between weekly, fortnightly or monthly repayments. 3 year fixed rates are for new Owner Occupier Principal & Interest loans.

    Go to site
    Details
  • placeholder
    Mozo Experts Choice 2021
    Celebrate Variable Home Loan

    <60% LVR, Owner Occupier, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    1.99% p.a. variable
    1.99% p.a.

    Fast and efficient online application. Automatic discounts as loan is paid down. Free extra repayments and redraw facility. Zero fees. Min 40% deposit required. Winner of three Mozo Expert's Choice Awards for 2021.

    Go to site
    Details
  • placeholder
    Variable Home Loan

    Owner Occupier, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    1.99% p.a. variable
    1.99% p.a.

    Refinance only. Super-fast digital application process. Zero upfront fees. No on-going service fees. Free 100% offset sub account. Apply Online & Refinance before 29 October 2021 for the chance to WIN your home loan interest free - Save up to $1.1 million. T&Cs apply.

    Go to site
    Details
  • placeholder
    Basic Home Loan

    Fixed, Owner Occupier, Principal & Interest, LVR<70%

    interest rate
    comparison rate
    Initial monthly repayment
    2.09% p.a.
    fixed 3 years
    2.32% p.a.

    No upfront or ongoing fees. Free extra repayments and redraw facility. Option to earn Qantas points. Min 30% deposit required. Borrow up to $750,000.

    Go to site
    Details

* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate, loan amount and term entered. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.

While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.