What Is a Hardship Variation?

From interest rate rises to changes to your income or sudden illness, there may be times when you experience mortgage stress due to changes in your financial situation. As a borrower, the last thing you want is to risk losing your home, luckily your lender should be able to help you out if you’re going through a tough time. 

Here’s what to do if you’re experiencing financial hardship.

What is hardship variation?

A hardship variation is a temporary change to the terms of your home loan due to financial difficulties. Essentially, you can request a hardship variation if you’re not able to make your loan repayments as a result of circumstances outside of your control, including illness, unemployment, domestic violence, relationship breakdowns, natural disasters or other unexpected financial hardships.

The main aim of a hardship variation is to provide temporary relief when you’re facing genuine financial hardship, allowing you to renegotiate the terms of your loan in a way that makes it more manageable for you to meet your obligations. 

When you apply for a hardship variation with your lender, you can ask them to:

• Reduce the repayment amount, 
• Extend the loan term, 
• Temporarily suspend repayments altogether, or
• Develop a unique plan to help you get back on your feet. 

The options available to you tend to depend on your specific circumstances.

When you’re experiencing financial hardship, it can be difficult to ask for help. But if you leave it for too long, things can quickly go from bad to worse. That’s why it’s important to reach out to your lender for help as soon as possible. If you or someone you know are impacted by domestic violence, for confidential information, counselling and support we recommend calling 1800RESPECT on 1800 737 732. This is free and confidential service that isn't part of Unloan.

Applying for hardship

To apply for a hardship variation, you’ll need to follow a few simple steps. 

While each lender has their own process in place, here’s a general guide to applying for a hardship variation.

Step 1. Figure out what you can afford to pay

Before you approach your lender, review your current situation to work out how much you can afford to pay. It’s also worth figuring out how long you expect your financial issues to last before you can get back to regular programming with your home loan.

Step 2. Contact your lender

Next, you should get in touch with your lender as soon as possible. Most lenders have dedicated hardship teams or departments to help borrowers in these types of situations.

You might need to write a hardship letter explaining your situation in more detail. Be honest and specific about the challenges you're facing and how they're affecting your ability to repay the loan. Also, mention any steps you've taken to improve your situation or any changes you anticipate in the future. The more transparent you are, the easier it will be for your lender to come up with a plan to suit your circumstances.

Step 3. Provide supporting documentation

In some cases, you might need to provide additional information to help your lender understand your financial situation. They might ask you for the following:

• Income statements,
• Previous/ongoing expenses,
• A medical certificate, or
• An employment separation certificate depending on your circumstances.

Step 4. Wait for your creditor to respond

After you’ve submitted your financial hardship application, your lender is required to respond within 21 to 30 days. During this time, you should continue to pay what you can afford towards your home loan.

As a general rule, your lender is required to consider hardship variation requests in good faith while working with you to find a suitable solution to help you overcome your financial difficulties without any added burden. There are legal and regulatory frameworks in place to make sure lenders handle hardship variation requests fairly and transparently.

Step 5. Settle on a financial hardship arrangement

When you hear back from your lender, they’ll typically:

• Agree to your hardship variation,
• Ask you for more information,
• Suggest an alternative hardship arrangement, or
• Decline your financial hardship application.

If your lender agrees, it’s important to get their agreement in writing that clearly details:

• The amount and frequency of your repayments,
• Any interest or fees that are due to be charged,
• The start date and end date of the variation period, and
• What happens when the temporary variation comes wraps up.

Alternatively, if your lender declines your hardship application, you can lodge a complaint directly with your lender or go to the Australian Financial Complaints Authority (AFCA). They have the authority to enforce your lender into accepting a fair hardship arrangement, provided you can prove the reasonableness of your hardship request and demonstrate your ability to meet future payment obligations.

Step 6. Comply with your new arrangement

Once your lender approves your hardship variation request, they will typically provide you with a new repayment plan or modified terms for your loan. Make sure you review the offer carefully to ensure you understand the changes and how they will impact your finances.

If you're happy with the proposed variation, you’ll need to sign any necessary documents to formalise the agreement with your lender. Make sure you understand your rights and obligations under the new terms.

Once the hardship variation is in place, be sure to stick with the new repayment plan or terms agreed upon with your lender. Keep track of your payments and communicate with your lender if you encounter any further difficulties.

At Unloan, we have a dedicated financial hardship team on hand if you’re experiencing any financial difficulties. Otherwise, you can also contact these external support services if you need a hand tackling your debt problems. 

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This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.

Unloan is a division of Commonwealth Bank of Australia. 

‍Applications are subject to credit approval; satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000.  

‍Unloan offers a 0.01% per annum discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan. 

‍There are no fees from Unloan. However, there are some mandatory Government costs depending on your state when switching your home loan. For convenience, Unloan adds this amount to the loan balance on settlement. 

* Other third-party fees may apply. Government charges may apply. Your other lender may charge an exit fee when refinancing.

If you need support, please visit our important links for vulnerable customers.