During this Coronavirus crisis, many of us are more worried about money than usual. Whether you’re a business owner who has had to close, a freelancer who has lost clients, or an employee who has lost their job, these are uncertain times, and for lots of people, there’s concern about paying the bills. For most of us, one of the biggest concerns is how we’re going to keep paying the mortgage. The four big banks in Australia are allowing customers to defer their mortgage repayments, but is this something you should be doing?
What deferrals are available?
Australian banks want to work with their customers to help keep them in their homes during this difficult time. If you are experiencing financial difficulties during this time, banks are offering customers the option to defer their mortgage repayments for up to six months.
Some banks are also offering help with your credit card and personal loans. Depending on your circumstances, they may be able to waive fees, restructure any loans, or offer other help to help you get through any money problems during this health crisis.
If you are granted a six-month deferral on loan repayments on your mortgage or other loans, your credit rating will not be negatively affected, as long as you were up to date on your payments before this.
If your finances have taken a hit, contact your mortgage broker as soon as possible before you agree to anything with your bank. The earlier you do this, the more help they will be able to offer you.
What are the pros and cons of deferring your mortgage repayments during the coronavirus crisis?
If you’re struggling with money, putting your mortgage on hold seems like an obvious course of action. However, before doing this, it’s important to understand the full impact of deferring your repayments.
Pros
⚫️ Payment pauses of up to six months are available. Check with your bank to see what they’re offering
⚫️ No impact to your credit rating
⚫️ Help available on other loan products like credit cards also available
Cons
⚫️ This is not a mortgage holiday. Interest will still accrue during the deferral period, which will be added to the total that you owe.
⚫️ After the deferral, you may have to make bigger or more frequent repayments afterwards, making your mortgage more expensive.
⚫️ The loan terms may remain the same, so you will still need to pay the same amount, only now in a shorter time.
⚫️ There are a lot of misconceptions and misunderstandings about mortgage breaks.
Before deciding, make sure you have fully understood the terms your bank are offering and make sure you will be able to pay your mortgage again when the deferral period is over. Speak to a mortgage broker to help you understand options and make decisions appropriate for your situation.
FAQs
What evidence will my bank need?
If you have lost your income or your job as a result of Coronavirus, then you are likely to qualify for mortgage deferrals. Keep any documents like a letter of termination, so you have proof of your income loss. Some banks aren’t asking for evidence, whereas others are deciding on a case-by-case basis. If you aren’t sure if you will qualify for help, check with your lender.
Will I be charged interest during my mortgage deferral?
You won’t have to make any payments while your mortgage is on hold. However, interest will continue to be accrued. This must be then paid off over the lifetime of the loan once you start paying again. Some banks may allow you to extend the length of your loan, but not all, so discuss this first.
Will deferring my payments affect my credit rating?
No. If you were up to date with your payments before COVID-19 hit, your credit rating will not be hurt by asking to defer your mortgage repayments.
If I need help, how do I get in touch?
Start by speaking to your mortgage broker, who can talk you through your different options. Next, reach out to your bank. The best way to contact your bank is through their website or app. Most banks now have dedicated pages about the help they can offer you and will have details on any evidence they might need and how best to contact them to arrange the help. Bank call centres are still open and many are working longer hours in order to help as many customers as possible. However, due to demand, you may be waiting on the phone for a while. Many branches are still open, but due to social distancing guidelines, it is best to avoid going into your branch if it is at all possible to do so.
Some banks are contacting their customers directly to offer help, but if you are in difficulty, don’t wait for them to contact you, and contact your lender yourself.
I don’t use digital banking. Should I start?
Yes. This is the perfect time to make the switch to digital banking either on your bank’s website or smartphone app. While branches are remaining open, the Government’s social distancing measures mean that you should avoid going into branches whenever possible. Instead, manage your account online where possible. If you aren’t sure how to set this up, your bank can help you get started, or you can ask a more tech-savvy friend or family member.
If you are experiencing financial difficulties due to the global pandemic, try not to panic. There is help available from your bank to help you manage your mortgage and other loan products, such as credit cards and personal loans. If you need help, contact your bank, lender, or mortgage broker today to discuss your options. Before making any decisions about what to do about your mortgage, make sure you have discussed all your options fully, and properly understood what this will mean for your repayments after the current crisis is over and you return to making payments. Ask for help, but don’t get into more difficulties afterwards, thanks to larger payments.
Bernie Kyne
Mortgage Consultant
0400141757
bernie.kyne@mortgage-express.com.au
Disclaimer: While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken for any errors or omissions. The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action in relation to the matters dealt within this publication, you should seek professional advice.
