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Many Australians are struggling to make home loan repayments as first the coronavirus pandemic and now recession have hit the economy hard. If you are can't repay your home loan, most Australian lenders will let you pause or defer your mortgage repayments for between three and six months. This is also known as a mortgage repayment holiday.
You can temporarily stop making repayments, but you will need to pay the full amount back later. In most cases you will also be charged interest during the deferment period, which you also pay back over the remaining loan period. So this means your later repayments will rise.
Alternatively your lender may let you extend your loan term, keeping your repayments lower but making you repay the loan for longer to cover the extra interest.
Lost your job? Check out your support options
Read on to find quick summaries of lender policies and links to their coronavirus mortgage support pages, plus explanations for some of the technical terms contained in these policies and proactive tips for getting your mortgage repayments under control.
Most Australians bank with the Big Four (CBA, NAB, Westpac and ANZ) and they have the majority of mortgage customers too.
Here's how the Big Four are helping borrowers hit by COVID-19:
The Commonwealth Bank is offering repayment deferral for all home loan customers for up to six months. The bank will even offset the extra interest charges that this deferral will accrue, meaning you won't end up paying more interest (you will still need to make up the deferred repayments later, of course). The bank has also lowered interest rates on some of its fixed rate products for new customers.
But if you have made extra repayments on your loan (your redraw facility) the bank will draw down on this first. CBA suggests "If you need to access your redraw during the support period, transfer your available redraw to another account now."
Full policy here.
Customers with home loans can pause repayments for up to six months. This includes investors and owner-occupiers but excludes borrowers with line of credit loans. If you pause repayments your interest will continue to be calculated on your loan balance. You can organise repayment changes using the NAB app. NAB has also lowered fixed home loan rates for new customers.
Read the full policy here.
Westpac loan customers who have lost their job or substantial income because of COVID-19 can apply for a three-month repayment pause followed by a second three-month pause (subject to review). Lower fixed rate owner-occupier loans are available for new borrowers too. Borrowers who have been with Westpac for more than 12 months may also have the option to reduce their repayments temporarily by up to 50%.
You can use extra repayments in your redraw facility to cover repayments or move that money into another account.
Full policy here.
The bank is cutting its variable home loan rate by 0.15% (effective 27 March). This will make repayments cheaper for borrowers with variable loans. Borrowers can pause repayments for six months, with a review three months in. Interest will be charged during this period and added on to the loan balance, meaning you will have to repay it later.
Full policy here.
If you're still employed but have less income then you may have the option of switching to interest-only repayments for a while. This will reduce your repayments in the short term and could offer some breathing space. But be aware that over time interest-only repayments will cost you more because you're essentially adding more interest charges to the loan.
While we're unable to list every lender and their policy, the list below contains a significant number of Australian lenders outside the Big Four. For the most up-to-date information always check with your lender directly.
Contact your lender before you miss a repayment. If you can arrange a hardship deferral or reduced repayment with your lender you'll be in a much better position than if you just stopped paying. If you do this properly you may not impact your credit score at all. Learn more about protecting your credit score.
Every lender has its own criteria to determine who is eligible for coronavirus support or not. You may have to prove that you've lost a job or income to qualify. Some lenders are extending repayment pauses to all their borrowers, on the understanding that you will end up paying everything back later.
If you've lost your job or had invoices cancelled, retaining a letter of termination or other evidence of income loss is a wise move.
Some of the jargon in lenders' support policies can be confusing. Here are some basic definitions to help you make sense of everything:
A pause or deferral of repayments is often known as a mortgage repayment holiday. It means you take a temporary break from your normal repayments while you get back on your feet financially. You will need to cover these repayments later, either by extending your loan for a longer period (thus making more repayments) or by increasing your repayments after the pause period.
Some lenders will pause your repayments but charge interest for those months of non-payment. Instead of making you repay all this interest in one go it is usually capitalised onto your loan. This means the extra costs are added to your existing loan amount and you repay them over time.
Many lenders allow you to make extra repayments. If your loan has a redraw facility you can withdraw some of this extra money to spend if needed. If you're in financial stress but you've made extra repayments in the past your lender may let you redraw this money and convert it to extra repayments. Because this money has already been paid by you, your lender may simply adjust the repayment terms. You will need to arrange this with your lender.
Many lenders mention interest rate cuts in their coronavirus support packages. This is partly because the RBA just lowered the cash rate again, making borrowing costs cheaper. At this stage, most lenders are not lowering variable rates. Some are cutting fixed rates for new customers. But if you've already fixed, well, you've fixed. Your rate won't get lower.
There are many steps you can take if you're currently unaffected by financial stress but want to prepare yourself just in case.
If you currently have a home loan, consider the following:
Note that if you have other, higher interest debts beside your mortgage then you should get those under control first, if possible.
If you're struggling to keep up with your finances - you're not alone. You can save plenty of cash by doing some simple admin with your bills and expenses. Maybe switching credit cards or downgrading your mobile phone plan could save some money.
Managing your daily finances can help you get through this difficult time - You'll be glad you did it.
Picture: GettyImages
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