Mortgage hardship and AFCA complaints: your rights if you can't make repayments

If you are struggling with home loan repayments because of illness, job loss, separation, a natural disaster or another reason, you have a legal right under the National Credit Code to ask your lender for a hardship variation, such as lower repayments for a period, interest-only repayments or a longer term. Ask as early as possible, ideally before you miss a payment. The request can be made by phone, in writing or online; the lender must respond within the time set by law, and if you are unhappy with how it handles your request or a complaint, you can go to the Australian Financial Complaints Authority (AFCA), a free, independent service.

This guide is part of home loan refinancing mistakes. It is general information. For help preparing a request, call the free National Debt Helpline on 1800 007 007.

Step 1: make a hardship request

Contact your lender's hardship or financial assistance team and say you are in financial hardship. Be ready to explain:

what has happened and when
whether it is temporary or ongoing, and when you expect things to improve
what you can afford to pay now, based on a simple budget
what kind of help you are asking for

Under the National Credit Code, the lender must respond to a hardship notice within the required timeframe, which is generally 21 days. It may ask you for information, such as payslips or a medical certificate, before deciding. If it refuses, it must give reasons in writing and tell you about AFCA. Lenders that subscribe to an industry code, such as the Banking Code of Practice, have also made further commitments about how they treat customers in financial difficulty.

Step 2: understand the options

Worked examples on an illustrative $450,000 balance at 6.10% with 24 years left. Normal P&I repayment: about $2,979.17 a month.

Option	Repayment during relief	Monthly relief	What it costs later
Interest only for 6 months	$2,287.50	$691.67	Balance still $450,000; repayment afterwards about $3,007.26 over the remaining 23.5 years
Extend the term by 5 years	$2,760.24	$218.93	Total interest rises from about $408,000 to about $510,600 if kept to the end
Payment pause for 3 months	$0	$2,979.17	Interest is usually added to the balance, and repayments rise afterwards
Reduced repayments for a period	An agreed lower amount	Depends	Shortfall plus interest is added to the loan or repaid later

How the interest-only figure works: $450,000 x 6.10% / 12 = $2,287.50. Under normal repayments, about $4,200 of principal would have been repaid in those six months; that is the principal you defer.

The term extension gives modest monthly relief at a large long-term cost. It can still be the right choice for a lasting income drop, but if the problem is temporary, a short interest-only or reduced-payment period usually costs less overall.

What a hardship arrangement means for your credit report

Since July 2022, lenders can report financial hardship information in your repayment history when you have a hardship arrangement, instead of reporting missed payments. This information is kept for a limited time and is designed to be less damaging than arrears. Check with the OAIC for the current rules and your rights to correct errors.

If you have already fallen behind

Your lender must give you a default notice and at least 30 days to fix the default before it can start enforcement, such as court action to repossess the property.
You can still make a hardship request after a default notice. Do it quickly.
Contact a financial counsellor through the National Debt Helpline. Counsellors can negotiate with lenders for you.
If the lender has started legal action, get legal advice. Community legal centres and Legal Aid in your state may help.

Complaining to the lender, then to AFCA

Internal dispute resolution (IDR). Complain to the lender or broker first. Under ASIC's rules, firms generally have 30 calendar days to give a final response to a standard complaint, and shorter timeframes apply to complaints about hardship and default notices.
AFCA. If you are unhappy with the response, or the firm does not respond in time, lodge a complaint with AFCA online or by phone (1800 931 678). It is free.
While AFCA handles it. Lenders generally should not pursue certain debt recovery or legal action while AFCA is considering the complaint, subject to AFCA's rules. Ask AFCA what applies to your case.
Outcome. AFCA can help the parties reach agreement or make a decision that is binding on the lender if you accept it.

Common home loan complaints AFCA considers:

hardship requests refused or not answered
fees, break costs and interest calculation errors
delays in discharging a mortgage when refinancing
responsible lending concerns, such as an unaffordable loan
broker conduct, including advice not in your best interests

A short hardship letter

Keep a copy and note the date and name of anyone you speak to.

Frequently asked questions

Does asking for hardship help harm my chances of refinancing later?

A hardship arrangement may be visible on your credit report for a period, and some lenders consider it. Missed payments without an arrangement usually look worse.

Can my lender refuse a hardship request?

Yes, for example if it reasonably believes you could not repay even with a variation. It must explain why and tell you about AFCA. Selling the property may then be an option to discuss.

Is there a fee for a hardship variation?

Lenders generally should not charge fees that add to the hardship. Ask, and complain if a fee seems unfair.

Can I still refinance if I am in hardship?

It is hard, because a new lender assesses you under normal rules. Talk to your current lender first; see borrowing power and the serviceability buffer.

Sources

Australian Financial Complaints Authority — lodging a complaint
National Debt Helpline — free financial counselling, 1800 007 007
ASIC Moneysmart — financial hardship with your mortgage
OAIC — credit reporting and financial hardship information
Australian Banking Association — Banking Code of Practice