YOU MAY HAVE TO BITE THE BULLET

Josh Mennen, a lawyer at Maurice Blackburn, says it’s important to get on top of your debts early and be pragmatic.

First, you should apply for a hardship variation on your home loan. “A borrower can seek to vary the terms of their loan on the basis that they are unable to pay it, or if they did pay it, it would put them in significant financial hardship,” he says. “The lender has a legal obligation under those circumstances to engage with them and try to renegotiate the contract.

“For example, they may extend the duration of the loan but reduce the payments to interest only. Whilst a borrower is involved in that discussion, the lender is prohibited from taking recovery action from the courts.”

But if your work prospects are poor, pouring super into the loan may add to your woes. “The worst outcome is for the mortgage to be foreclosed and for the bank to take possession of the property in a forced sale because a forced sale is going to result in a poor realisation of the property’s value.

“You’ve already exhausted your super trying to make ends meet but the inevitable has happened anyway. Only the bank wins in that situation. It’s important to work out at the earliest point in time whether it is possible to retain the property or whether you need to bite the bullet and sell it.”

Super is quarantined from creditors if you go bankrupt. “That’s consistent with government policy to try and preserve it as best as possible,” says Mennen. So in this instance, the safest place for your super money would’ve been in your fund, which why trustees are strict about early access.