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Home loan repayments

Home loan repayments

  • Personalising loan repaymentPersonalising loan repayment
  • Making paymentsMaking payments
  • Defaulting Defaulting
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When you receive a home or construction loan to buy or build property, you must repay the principal loan amount plus interest.

In this section we cover ways to personalise loan repayments, what payment methods are accepted and options for dealing with financial hardship.

On top of regular loan repayments, homeowners must also pay regular utility bills and council rates. An annual land tax payment is also required for investment properties, holiday homes, commercial property or vacant land. See our Common Costs to Plan For section for more on these costs.

Personalising your loan repayment

Home loan repayments are required in line with the home or construction loan agreement signed between the borrower and the lender.

A standard loan agreement will outline the loan amount, the interest rate, the loan term and the repayment frequency (when payments are due). The borrower is typically responsible for organising payment.

Many lenders will now offer customers ways to personalise their loan repayment. Some common ways you can personalise your repayments included in the boxes below.

Increasing repayment frequency

Repayment frequency (how often you make repayments) impacts the total number of repayments made over the loan term. Borrowers must follow the repayment frequency terms agreed to in the loan conditions, and make regular payments on schedule.

Typically, home loan repayments will be required on a fortnightly or monthly basis, depending on your agreement with the lender.

Some lenders allow customers to voluntarily request to make more frequent payments, such as weekly rather than fortnightly or fortnightly rather than monthly.

More frequent payments will reduce your loan term as you are paying the principal loan amount off quicker. Paying the loan off over a shorter period of time saves the borrower money as interest is calculated on the remaining principal loan total.

Talk to your lender to see if they allow extra repayments.

Offsetting your loan

An offset feature allows you to link your home loan to a transactional bank account (e.g. a savings account). The amount in that savings account earns interest, which reduces (offsets) the interest on the equivalent amount of your home loan balance.

Temporary 'interest only' repayments

'Interest only' payments are a payment method offered by lenders to reduce your payments for a brief period of time.

Usually offered by lenders as a form of temporary support or hardship relief, interest only payments allow you to only pay your interest and not interest and principal.

Although this will decrease the amount you pay month to month, you are not paying off your principal, meaning you will pay more interest in total as the duration of the loan gets longer.

Interest only payments may offer short term relief, it extends the duration of your loan.

How can I make my payments?

Payments must happen on time in accordance with the loan agreement.

Borrowers can make repayments via:

  • Direct Debit - setting up automatic direct debit from your bank account to ensure timely repayments
  • Salary Deduction - An agreement you can enter with your workplace, to have your loan repayments deducted directly from your salary.
  • Online Payments - Payments can be made manually through online banking platforms or mobile apps.

What happens if repayment is not possible?

If you are unable to repay your home loan, you will 'default' on the loan.

There are strict rules which dictate what banks can do if borrower's default.

If you think you are at risk of defaulting, or are issued a default notice (a letter), you must try and talk to your Lender about your options.

  • All lenders have hardship and/or postponement policies.
  • You may be able change the terms of your loan, or temporarily pause or reduce your repayments. This is called a hardship or postponement variation.

Once a default notice is issued, the borrower is at risk of the bank repossessing the property (taking it back and selling it to repay the amount owed)

To repossess a property, lenders must follow a specific set of steps that are governed by regulation. These steps include:

  • Sending a default notice the day your repayment becomes overdue. The default notice will give you 30 days to make the payments you've missed, plus the regular repayment on your loan. If the circumstances allow, you can apply for a hardship variation.
  • After the 30-day default period, your lender can take legal action against you to repossess the property.
  • The lender will need a court order to repossess the property. If they receive a court order, they will send you a notice to vacate. If you do not leave in accordance with the notice to vacate, the police will evict you.
  • It is important to remember that eviction does not release you from the obligation to pay your loan. Even if your lender sells your property, if the sale proceeds are not enough to pay off the debt, the lender can still try and recover any outstanding balance by taking further legal action. This can include making a claim to sell your other assets and issuing you with other enforcement costs (these are the costs incurred by lender or the credit provider in going to court to recover the money owed)

It is important to speak to a legal professional and research your rights. For example, Victoria Legal Aid has a guide to how borrowers can defend themselves against a lender’s mistreatment and another guide on borrower's rights against debt collection.

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