When a borrower gets into arrears on their home loan, they have missed a due payment and are technically deemed to be “In Default”. Whenever loan payments are in default, financiers charge penalty interest rates and also a loan default fee until the arrears are caught up.

Additionally if the situation continues, collections and legal costs and other penalty fees will also be levied against you, making it quite expensive for you to remain continually in arrears. Of course, eventually, the lender will foreclose on the mortgage and then you will have a whole other problem.

The key point is that it is best to catch up your arrears or refinance your debts as soon as you can in such situations, to minimise overall costs alone. Not to mention your peace of mind and stopping creditors from harassing you.