Earlier this year, the Australian banks introduced a range of support measures to alleviate some financial pressure and assist customers in repaying their mortgage. These included repayment holidays and mortgage deferrals of anywhere from 3 to 6 months.
As the economic pressure from the COVID-19 pandemic continues, many Australians are still facing extenuating circumstances and additional financial strain.
With the deadline for mortgage deferrals and repayment holiday approaching, homeowners are left wondering: where to from here?
Don’t panic — there are still a number of options available to you. In this post, we explore 7 things you can do if your mortgage deferral deadline is approaching.
1. Request an extension on your repayment holiday
The majority of COVID-19 assistance schemes offered home loan deferrals or repayment holidays of up to six months, with a check-in at the three-month mark. However, if you are still having difficulty meeting your repayments, it may be possible to extend your repayment holiday.
The big 4 lenders have already introduced extensions on a case-by-case basis:
- Commonwealth Bank: From September 2020, Commonwealth Bank has announced that eligible customers may be able to extend their existing deferral by up to 4 months. Commonwealth Bank will contact all customers prior to the end of their current deferral to discuss their individual circumstances.
- NAB: NAB has extended its support options for home loan and business customers. Any customers on existing six-month loan deferrals may be eligible for an extension of up to 4 months, ending no later than 31 March 2021. Like Commonwealth Bank, NAB will contact customers before the deferral period ends to discuss options.
- ANZ: Customers who continue having difficulty meeting repayments at the end of the COVID-19 Assistance period may be given the option to extend their home loan repayment deferral on a case-by-case basis by up to 4 months. ANZ will contact customers prior to the end of the deferral date, or customers can proactively reach out to discuss their options with the ANZ Customer Connect team.
- Westpac: For customers who may require more support, Westpac has indicated that a further repayment deferral period may be possible for some customers, following a review of current circumstances. Existing customers on a COVID-19 support package can fill out an online form to request a call back from a Westpac team member.
Bear in mind that if you do choose to extend your repayment holiday, any additional unpaid interest that is accrued during this time will be added to your total outstanding loan balance, and needs to be paid back over the remaining loan term. Learn more about repayment holidays in this blog post.
2. Refinance your mortgage
The combination of the COVID-19 pandemic and the recession means that RBA interest rates are at an all-time low. Refinancing your mortgage during this time is a great way to secure a competitive home loan interest rate and potentially benefit from reduced monthly repayments, lower fees, or cash rebates.
If you’re considering refinancing your mortgage — and you’re currently on a variable home loan, it may be worth switching to a fixed-rate loan. This will allow you to have more predictability over your repayments in the short term, which may help you better plan and manage your budget.
3. Switch to interest-only repayments
Interest-only repayments can be a viable solution if you are in a challenging financial position but do not want to refinance your mortgage or extend your repayment holiday.
If you are currently on a principal and interest repayment plan, switching to interest-only repayments could help you save some much-needed cash in the short run.
On an interest-only repayment plan, your repayments will only cover the interest on the principal amount borrowed. This can significantly reduce your home loan payments in the short-term, but you will end up paying more interest over the lifetime of your loan — plus you may end up with higher monthly repayments once the period is over.
4. Reduce your repayments
Despite interest rates dropping to historic lows, your lender may have kept your repayment schedule the same as it was pre-COVID-19. This means you may be making more repayments than you need to on a variable home loan.
It’s worth speaking to your lender to see if you can reduce your payments to the minimum monthly amount possible, until you are in a more stable financial position. If you are an existing Rateseeker client, your broker can assist you to reduce your repayments.
5. Access your redraw facility
A home loan redraw facility allows you to access any extra repayments you made on your home loan that exceeded the required minimum repayment amount. As the name suggests, these funds can be ‘drawn’ on when required, such as if you cannot meet your repayments or are in a precarious financial situation.
Not all home loan products come with a redraw facility — these are typically available with flexible fixed-rate loans and variable rate home loans.
Consult your mortgage broker or your lender to see if you are eligible to access your redraw balance.
6. Access your superannuation
In April this year, the Australian Government announced that people suffering financial hardship as a result of COVID-19 may be eligible to apply for early access to their superannuation. Up to $10,000 can be accessed from 1 July 2020 until 31 December 2020, and only one application can be made for the 2020-21 financial year.
Australian and NZ residents can apply for early access to their super if they meet the following conditions:
- Be unemployed, or
- Eligible to receive the JobSeeker payment, Youth Allowance for Job Seekers, parenting payment, special benefit or farm household allowance, or
- On or after 1 January 2020:
- you were made redundant,
- your working hours were reduced by 20% or more
- your business was suspended
- for a sole trader, your business was suspended or your turnover dropped 20% or more
These applications must be made directly through myGov.
7. Consult your mortgage broker
At the end of the day, each individual’s circumstances are different. A mortgage broker is across the latest lender policies and can help you evaluate the options to find the best solution for your financial situation.
If you are nearing the end of your mortgage deferral deadline and would like to explore your options, our experienced brokers are here to help. Get in touch with Rateseeker today for an obligation-free consultation — we’ll get back to you within 24 hours.