Yahoo Finance Recession 2020: How to defer your home loan
When the coronavirus pandemic hit Australia earlier this year, several banks offered borrowers the opportunity to defer their mortgage repayments if they are under mortgage stress and are affected by the economic fallout of COVID-19.
By the end of May, the Australian banking sector had provided six-month repayment holidays on around half-a-million home loans worth more than $190 billion.
That means, at the peak of deferrals, around one-in-10 home loan customers had been allowed by their bank to stop making repayments without going into default, and most of those customers did stop paying.
That six-month period was set to end in September, but lenders have added another four months which means now the mortgage holiday is extended up until January 2021.
Also read: Will interest rates go up in a recession?
What does home loan repayment deferral mean for me?
If approved, it means that you don't have to make any home loan repayments during the deferral period.
But, if you choose to defer, your interest will continue to accrue. This means unpaid repayments will also be added to your loan balance and could mean that after your deferral period you may end up owing a higher monthly repayment.
How do I defer my home loan?
If you've lost your job or suffered loss of income (including rental income) as a result of COVID- 19, you can apply to defer your mortgage repayments.
To apply for a home loan deferral you should contact your financial institution and register for the Covid-19 support package.
Warning: Do not stop making your repayments. You must apply and be approved for deferred repayments.If you stop making repayments without a deferred repayments approval, it will be considered a default.
ANZ is allowing customers to defer their mortgage payments for up to six months. To apply, ANZ home loan owners need to request a repayment pause by filling in an online registration form. Once submitted, a representative from ANZ will get in contact with you to discuss your request.
Commbank is also offering an assistance period of up to 6 months to all home loan customers, during which they will not be required to keep up with their mortgage repayments. To apply for a request to pause repayments from CommBank, you’ll need to fill out an online registration form.
A six month assistance period is also available for NAB customers who have been affected by the outbreak. To request a pause on repayments from NAB, you’ll need to submit an online registration form. Alternatively, you can call up NAB directly but it’s likely you’ll experience delays due to a high volume of callers.
Westpac customers who have lost their job or suffered a loss of income as a result of the coronavirus outbreak will be able to defer their mortgage repayments for three months, with a further three month extension available after review. To request a pause on repayments from Westpac, you’ll need to fill out an online registration form. Once submitted, a representative from Westpac will be in touch to discuss your situation.
Home loan deferrals - the downside
While a mortgage holiday might sound great, Aussie’s should be wary about applying for a home loan deferral unless absolutely necessary.
Why?
Because, according to Canstar analysis, a six-month mortgage holiday on a $400,000 loan could result in an additional $21,833 by the end of a loan.
If, on the other hand, our hypothetical borrower had already had this loan for five years, the cost of taking a mortgage holiday would fall down to $17,373. If they’d had the loan for 15 years, the cost of pausing their repayments would be $8,666, Canstar said.
“So based on what we’ve seen so far, using this repayment pause option will obviously put you behind in terms of paying off your loan,” Canstar finance expert Steve kerMickenbecker said.
“But, for many people, surviving is going to be the goal here, and not losing your house could be worth extending your loan repayment period for a time.”
I’m unsure about deferring my home loan, what are my other options?
Interest-only repayments is an option to consider. Switching to interest-only repayments means the interest on your home loan isn’t compounding like it would if you took a holiday period. Some banks have even announced they would waive fees for this type of loan change
Another option is to stay with a principal-and-interest loan, but restructure it. This can be moving from a variable to a fixed rate loan or even switching to a split variable/fixed arrangement, Canstar explains.
A third option could be to refinance with a different lender to get a more competitive interest rate or access to a better COVID-19 package elsewhere.
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