What can you do if your mortgage repayments become hard to afford?

By Paul Feeney, Founder and Chief Executive Officer, Otivo

Most people in trouble with a mortgage wait too long to say so. Not because they don't know it's happening — they can see the account balance every month — but because asking for help feels like an admission, and because the widespread belief is that a lender's answer will be no. It's worth knowing that a request for hardship assistance isn't a favour a lender may or may not grant. It's a formal notice they're legally required to respond to, in writing, within 21 days. That's one of four levers available on a home loan, and knowing all four before the conversation changes how the conversation goes.

Options when mortgage repayments become difficult include requesting a hardship variation, negotiating a lower interest rate, refinancing, restructuring the loan, or changing repayment type. Under the National Credit Code, a borrower can give a lender a hardship notice, and the lender must respond in writing within 21 days. ASIC's MoneySmart and the free National Debt Helpline both provide guidance.

The four levers on a mortgage repayment

Every option available on a home loan works by moving one of four things. Naming them makes the choices easier to compare, because two options that sound different often move the same lever.

1. The interest rate. Negotiating with the current lender, or refinancing to another one.
2. The loan balance. Using an offset account or redraw, or making extra repayments when circumstances allow.
3. The loan term. Extending the term reduces each repayment and increases total interest paid.
4. The repayment type. Switching to interest-only, or pausing or reducing repayments under a hardship arrangement.

Levers three and four lower the immediate repayment and increase what the loan costs overall. Levers one and two do the opposite. Neither is better in the abstract — what matters is whether the pressure is short-term or structural.

What is a hardship notice, and what does a lender have to do?

This is the least understood option and often the most useful one.

Under the National Credit Code, a borrower who can't reasonably meet their obligations can give the lender a hardship notice — a request to change the terms of the loan because of a change in circumstances. Illness, job loss, reduced hours, separation and the death of a household earner are all common grounds.

The lender is required to consider it and respond in writing, generally within 21 days. A hardship variation might involve a temporary reduction in repayments, a short pause, an extension of the loan term, or capitalising missed payments into the balance.

Two practical points are worth knowing before making the call.

First, timing. A borrower who calls before missing payments has more options than one who calls after several. Arrears change the shape of what can be arranged.

Second, credit reporting. Where a hardship arrangement is agreed, financial hardship information is recorded on the credit report separately from repayment history, and it's removed after 12 months. It's a real consequence, and it's a considerably smaller one than a series of missed payments or a default.

If a lender declines a hardship request or the response is unsatisfactory, the matter can be taken to the AFCA, which is free for consumers.

Is it worth asking for a lower rate?

Often, and it costs a phone call.

Lenders price new loans more competitively than existing ones, which means a borrower who hasn't reviewed their rate in three years may be paying more than the same lender is offering new customers today. Asking the current lender to match their own new-customer pricing is a common first step, and the leverage is that refinancing is a genuine alternative.

Even a small reduction compounds. On a $600,000 loan at 6% over 30 years, a 0.25 percentage point reduction lowers the monthly repayment by about $95 and saves roughly $34,000 in interest over the full term, assuming the repayment is reduced rather than kept the same.

Refinancing to a different lender can achieve the same thing, though it involves an application, a valuation and potentially fees. Where a loan is on a fixed rate, break costs may apply, which can be substantial. Variable loans are generally easier to move.

What does changing the loan structure do?

Three structural changes come up regularly, each with a clear trade-off.

Splitting the loan. Part fixed, part variable. The fixed portion gives repayment certainty; the variable portion generally allows extra repayments and easier exit. It's a common structure precisely because it doesn't require picking one risk over the other.

Extending the term. Stretching the remaining term lowers each repayment. It also means paying interest for longer, so total cost rises. It can be the right call for a household with a temporary income problem and a long horizon, and an expensive one for a household close to the end of a loan.

Interest-only. Repaying only the interest lowers the monthly figure noticeably, because the principal component disappears. Two consequences follow. The loan doesn't reduce during the interest-only period, so no equity is built. And when the period ends, repayments step up sharply, because the original principal now has to be repaid over a shorter remaining term. Lenders also assess interest-only applications on their own criteria.

What happens if things are already difficult?

If repayments are already being missed, or being covered by credit cards, the situation is different from the one above and the sequence changes.

Free financial counselling is available through the National Debt Helpline on 1800 007 007. Financial counsellors are not connected to lenders, the service costs nothing, and they can negotiate with creditors directly.

ASIC's MoneySmart has guidance on problems paying a mortgage, including what to expect at each stage if arrears continue.

Contacting the lender remains the first move in almost every case. The uncomfortable truth about mortgage stress is that the options narrow over time, and the household with three months of runway has choices the household with none doesn't.

Frequently asked questions

Can I ask my bank to pause my mortgage repayments?

A borrower can give the lender a hardship notice requesting a change to the loan terms, which can include a temporary pause or reduction. The lender must consider it and respond in writing, generally within 21 days.

Does asking for hardship assistance hurt my credit score?

Where a hardship arrangement is agreed, financial hardship information is recorded on the credit report separately from repayment history and removed after 12 months. Missed payments and defaults have a longer and more significant effect.

Is it better to extend my loan term or switch to interest-only?

Both lower the immediate repayment and increase the total cost. Extending the term keeps some principal reduction happening; interest-only stops it entirely but usually reduces the repayment further. Which suits depends on how long the pressure is expected to last.

How much does a 0.25% rate reduction save?

On a $600,000 loan at 6% over 30 years, about $95 a month and roughly $34,000 in interest over the full term, if the repayment is reduced accordingly.

What if my lender refuses to help?

The matter can be taken to the AFCA, which handles complaints about credit providers at no cost to consumers.

Mortgage pressure is a solvable problem far more often than it feels like one, and the variable that matters most is how early the conversation starts. Otivo provides regulated digital financial advice under AFSL and Australian Credit Licence No. 485665, and its debt advice models repayment scenarios against household income and expenses. The budget planner is a quick way to see where the actual gap is, and it's worth reading alongside what a rate rise does to your repayments if the pressure is coming from rate movements rather than income.

Sources

• National Consumer Credit Protection Act 2009, National Credit Code hardship provisions
• ASIC MoneySmart, Problems paying your mortgage
• ASIC MoneySmart, Financial hardship
• Australian Financial Complaints Authority
• Repayment and interest figures calculated on a $600,000 loan at 6%, 30-year term, principal and interest, fees excluded

Disclaimer

The information in this communication is current as at August 2026 and has been prepared by Otivo Pty Ltd ABN 47 602 457 732, AFSL and Australian Credit Licence No. 485665. This content is general information only and has been prepared without taking into account your objectives, financial situation or needs. It is not personal financial or taxation advice and should not be relied on as such. Before acting on any information, you should consider its appropriateness having regard to your personal circumstances. This material must not be reproduced in whole or in part, or posted on any social media platform, without the prior written consent of Otivo Pty Ltd.