Mortgages and home loans

Your rights and choices in this common and complicated financial arrangement, and what to do if things go wrong.

A mortgage is the biggest financial arrangement many of us ever enter.

We are asked to make complicated decisions, which can have a big impact on our life, before we might fully understand how it works. From day one we are faced with choices and decisions:

Lender or mortgage broker?
Fixed or floating interest?
Revolving credit or 30-year loan?

Even when everything is going smoothly, borrowing a large amount can feel stressful. If things start to go wrong, it can feel like a disaster.

Whether you're struggling to make repayments, receiving letters from the bank or you've got an issue with the lender itself, you have options and support.

There are also options you can take when things don’t go well and you need to complain.

Making a complaint about your financial service provider

Making decisions

Lender or mortgage broker

There are different options for how you find a mortgage:

Straight to a lender

This could be a bank or non-bank lender (for example, a building society or credit union). However, many non-bank lenders only deal with mortgage brokers.

You aren't limited to your day-to-day bank. Talk to a number of lenders about rates and offers before you decide.

Questions to ask a lender when getting a mortgage(external link) — Sorted

Through a mortgage broker

Mortgage brokers are a type of financial adviser. They don't lend money themselves, but deal with lenders on your behalf and can shop around for you.

Not all lenders work with brokers, so there may be options you aren't told about when using a broker. Most brokers are paid a commission by the lender, not by you.

Mortgage brokers must be registered as a financial advisor. Check the financial service providers register to make sure your broker is on it.

Financial Service Providers Register(external link) — Companies Office

When deciding who, ask the broker:

if they charge any fees
which mortgage providers they deal with (and which they don't)
what commission they receive from different lenders.

For in-depth information on the pros and cons of going straight to the bank or through a mortgage broker, see the Sorted website.

Shopping for a mortgage(external link) — Sorted

Loan structures and interest rates

When taking out a mortgage you'll need to decide interest rates and the structure of the loan. These choices influence how long your mortgage will take to repay and how much you pay overall. For example, if interest rates go down, switching to a different rate or term might mean paying break fees.

Interest rates (for example, fixed, floating or a combination of the two).

Mortgage structures (for example, standard loans, revolving credit and offset loans).

Before you make these decisions, think about:

your spending and saving habits
your overall budget including other expenses
what you can afford in repayments and whether this might change, for example — switching from two incomes to one
how long you want to pay your mortgage for.

Your lender or mortgage broker can talk through these options in more detail and assess which might suit you and your needs.

For in-depth information on mortgage types, as well as budgeting tools and mortgage calculators, see the Sorted website.

Mortgage types(external link) — Sorted

Repayment problems

Talk to your lender as soon as you find it hard to pay on time. The earlier you talk to them, the more they can do to help. If you know your finances will change (for example, your income will drop soon) talk to your lender before it happens.

You and your lender could discuss:

A repayment programme: If you miss one or two payments, your lender can work with you to come up with a programme to pay back the debt.
Hardship: If something unexpected happens and you can't keep up your repayments (for example, illness, a relationship ending or job loss) you might be able to apply for hardship. This could change your repayment amounts or give you a repayment holiday.

Payment problems

Mortgagee sales

If you don't try to get payments back on track, your lender might start the debt recovery process, which could lead to a mortgagee sale. This process is not quick. There are a number of steps before your lender sells your house.

Mortgagee sales(external link) — Banking Ombudsman

Whether you've already missed a payment or worry you might soon, try talking to your lender to find a solution.

Step one: Letter of demand

If you and your lender cannot agree to a solution, or if you continue to miss payments, you may get a letter of demand. This tells you how much you owe and a due date for payment.

Contact your lender straight away, what you say depends if:

You can pay the full payment: Tell the lender you will pay by the due date.
You cannot pay the full payment: Tell the lender the amount you could pay instead. You might still be able to come to an arrangement with the bank for the remaining amount.
You can't afford to pay and can't agree on an alternative payment: Talk to a financial mentor about other options like switching your mortgage to another bank or selling the house yourself.

Step two: Property Law Act notice (PLA)

Step three: Mortgagee sale

If you don’t pay the amount specified in the PLA notice, your lender has the right to sell your home to recover the loan amount, interest and other costs, eg break fees on any fixed-rate loans.

They must work to get the best price for the house. This includes getting an independent valuation and hiring a real estate agent. The lender might bill you for these extra costs.

Step four: After the mortgagee sale

If your house sells for less than the amount you owe, you must pay the difference. The lender might agree to a repayment programme, or they could take recovery action, eg debt collection, applying to make you bankrupt.

Bankruptcy and insolvency

Debt collection and repossession

A free financial mentor can help you. Start by contacting the free helpline MoneyTalks.

Contact information(external link) — MoneyTalks

Example — Letter of demand

Hannah gets made redundant and is out of work for three months. She falls behind on her mortgage payments. Hannah is embarrassed by her work situation and doesn't talk to the bank about a hardship application. Hannah receives a letter of demand and realises how serious the issue is.

Hannah calls her bank and explains the situation. She can't apply for hardship as she has missed too many payments. But the bank agrees to let her repay the missed payments over the next few months, as long as she keeps up her regular mortgage payments.

Your rights with mortgages and home loans

As a buyer and home-owner, you have rights lenders and mortgage brokers must respect.

Lenders must:

follow lender responsibility principles in the Credit Contracts and Consumer Finance Act (CCCFA), guided by the Responsible Lending Code.
check the loan is suitable for you — for example, ask about the amount you need, whether you want to pay off lump sums or any extra products you might want
check you can afford it — for example, ask about your day-to-day expenses like travel and food
help you understand the mortgage — for example, provide key information in writing like repayment amounts and how interest is calculated
make sure the mortgage is not oppressive — for example, the lender's behaviour and the mortgage contract itself cannot be extremely unfair or unreasonable.

What you can expect from your lender(external link) — Commerce Commission

Mortgage brokers must:

follow the rules set by the Financial Advisers Act
act with care and skill
only provide financial services they are registered for, and you asked for
give you key information about your home loan
not mislead or deceive you.

Other laws

Lenders and mortgage brokers must follow the Fair Trading Act and the Consumer Guarantees Act.

Fair Trading Act: Lenders and brokers must not mislead you, including in adverts or in contract terms (rules of the document you signed). For example, your lender advertised an interest rate of 4%, but when your mortgage starts a 6% interest is charged.
Consumer Guarantees Act: Lenders and brokers must not provide sub-standard services. For example, they need to use a reasonable level of care and skill and complete your work in a timely way.

Fair Trading Act

Consumer Guarantees Act

Providing accurate and complete information

If you provide false information and later get into trouble with your mortgage, the lender may not be held responsible.

Credit Contracts and Consumer Finance Act

Your rights with common problems

Break fees (early repayment charges)

If you end a fixed-term mortgage early, eg by repaying in full, or shifting to another bank before the term ends, you might be charged extra on top of an administration fee.

You have the right to break a fixed-term mortgage, but your lender also has the right to charge a fee to recover their costs or losses, as long as it is written in your mortgage contract.

If market interest rates have fallen since you took the mortgage out, the bank loses money. This is because it cannot lend the money out at the same rate as when it lent to you. If the interest rate is higher than when you started the mortgage, the lender cannot charge you a break fee.

Lenders cannot profit from break fees. They must be calculated to cover costs and losses of you breaking your mortgage early. The fee is decided using a complicated calculation. Contact your lender to find out how much before you break the fixed term.

If you think the break fee has been calculated incorrectly, first complain to the lender. If you and the lender cannot agree, complain to their disputes resolution scheme.

Early repayment charges(external link) — Banking Ombudsman

Cash incentives for mortgages

Many banks offer incentives for customers to take out a mortgage, eg cash or holidays. If you take an incentive, there is often a time frame where you cannot leave the bank, eg three years. If you do leave the bank in this time, the bank can ask you to return or pay back the incentive.

The bank has the right to ask for the incentive back as long as it's written in your contract.

Turned down for a mortgage

No one has a right to a mortgage or loan, but you do have a right to have the lender assess your mortgage application fairly. Lenders must look at all relevant information to decide if someone is able to afford the loan before they give one, eg make repayments without getting into difficulty.

They need to look at income, credit rating and expenses as well as any other debts. If they think someone is unsuitable for a mortgage, they are allowed to reject them for a loan. If you believe a lender made an error when assessing your loan, you can ask for your application to be looked at again.

If the lender followed its own administration systems and assessed your loan fairly, a disputes resolution scheme cannot force them to give you a mortgage.

Irresponsible lending

Lenders must find out if the person applying for the mortgage can afford to make repayments, eg make repayments without putting themselves into financial difficulty. If not, the lender should not give the person the mortgage.

If you think your mortgage should have been declined, you can complain to the lender and then to a disputes resolution scheme. In both cases, they investigate by looking at:

Information the lender asked for and was given.
If the lender should have asked for more information — was there something in your records the lender should have followed up on, eg large outgoings in your bank account you didn't explain?
If the lender followed its normal policies, eg requiring a 10% deposit but in this case dropped it to 5%.

Concerns about lending decisions(external link) — Banking Ombudsman

When things go wrong with your lender

If you are having problems with your lender or mortgage broker and you feel they have acted unfairly in any way, then there are options you can take to address your issue.

This can include making a formal complaint with your provider or getting help from a financial dispute resolution scheme.