Mortgage Relief Options During COVID-19

Due to the coronavirus pandemic, customers might lose their jobs and working hours, and face financial hardship.

Banks and lenders have announced various mortgage relief schemes to help their customers during this period.

What is financial hardship?

With the global coronavirus pandemic, banks and lenders are stepping up to assist customers who are affected financially.

If you have a home loan, struggling to make repayments for a specific period of time is considered to be financial hardship.

What mortgage relief schemes and options are available?

Here are some ways banks and lenders are helping customers with home loans who are facing financial difficulties due to the coronavirus:

• Deferring scheduled loan repayments, also known as a repayment holiday or mortgage holiday.
• Access money in redraw.
• Waiving fees and charges.
• Adding overdue repayments to the balance of your loan, so you are no longer in arrears and being charged late fees.
• Extending the loan term to reduce the amount of repayments.

Not all banks and lenders will have a coronavirus specific relief package prepared. However, they still have standard policies in place to help those who are facing financial hardship for any reason.

The Australian Banking Association(ABA) stated that these measures would be available to small businesses and home loan customers afftected by the current or past lockdowns, regardless of their location and industry.

The Australian Prudential Regulation Authority (APRA) has pledged regulatory support for banks offering temporary financial assistance to borrowers impacted by COVID-19 in 2021.

Taking a mortgage holiday

It is also known as a mortgage freeze or repayment holiday, and banks will allow you to stop your mortgage repayments for a limited time period, usually between 3 to 6 months.

Banks have announced a further three months till August 2021 for those customers genuinely in need of some more time.

The downside is, even if you don’t make repayments on your home loan during the period of the repayment holiday, the interest will continue to accrue.

You will need to pay it off once the repayment period begins again or the loan term is extended.

Extend your loan term

If your loan was set up some time ago then there may be 15 years or 20 years until the loan is paid off. By extending the loan term out to 30 years this reduces the size of the repayments.

The downside of this option is that you will end up paying much more in interest and may not pay off the loan before you retire.

For this reason it’s best to set a reminder for 1 – 2 years from now when you are in a better financial position to call your lender and shorten the loan term again.

Switch to interest only repayments

Many lenders will allow you to switch to just paying the interest on your loan for the next year or two. This will reduce the size of your repayments.

The downside of this is that you will pay more in interest over the term of your loan. Secondly your repayments will be higher after the interest only period ends. However this is very effective at reducing your repayments in the short term.

Use your redraw

Australians are approximately $271 billion dollars ahead in mortgage repayments as of July 2021. Through internet banking or by calling your lender you can access these funds and transfer them to your loan account.

The downside is that you will take longer to pay off your loan and will end up paying more in interest. However, this avoids the need to apply for a repayment deferral. Be careful as some loan types, such as fixed rate loans, may not allow you to access your extra repayments.

Switch to fixed then apply for a repayment holiday

You can do the following:

• Redraw any extra repayments from your loan into your bank account (this is often not allowed if you are fixed).
• Read our page on the risks of fixing your rate.
• Ask your lender if they allow repayment deferral on a fixed rate loan.
• After considering if this is appropriate, then switch to a lower fixed rate loan.
• Then apply for a repayment holiday / repayment deferral.

By doing this you get a lower rate and a repayment holiday which means that you are in a much stronger position. Fixing your rate has risks so it’s important that you consider this option carefully before proceeding.

Alternatively, if you’re currently on a repayment holiday, please read our guide on refinancing your home loan after a repayment holiday to go over your options.

FAQs on mortgage relief options

What are my options after the repayment holiday ends?

Customers coming to the end of their mortgage deferral period in September have several options which includes extending the deferral, resuming repayments, switching to interest only and other options.

We weigh the pros and cons of each option on our page, ‘After The Mortgage Payment Deferral Ends’.

Does repayment holiday mean my loan term is extended?

No, in most cases, the loan term will remain the same. You end up repaying a higer amount once the repayment holiday period ends.

However, there are banks and lenders who can help you extend your loan term after the repayment holiday period ends.

Since I’m on repayment holiday, what happens to my redraw?

If you have funds available in redraw, the minimum repayments from the date the repayment holiday starts will be held. You will not be able to access these funds during the repayment holiday period.

Will deferring loan repayments affect my credit rating?

No.

The Australian Prudential Regulation Authority (APRA) has noted that repayment holidays for newly deferred home loans would not count as “mortgage in arrears” so it would not be recorded on your credit file.

Even if borrower has taken up the repayment deferral, the home loan will not be regarded as restructured.

However, this is only applicable if the borrower has been meeting their repayment schedules and chose to take up the offer of a repayment holiday due to COVID-19.

In case of a joint account, can one of us apply for a mortgage freeze since only one of us is experiencing financial difficulity?

Yes, you can. Even if there’s only one person who’s expericing financial hardship, you can still apply for a repayment holiday.

Does repayment holiday mean my loan term is extended?

No, in most cases, the loan term will remain the same. You end up repaying a higer amount once the repayment holiday period ends.

However, there are banks and lenders who can help you extend your loan term after the repayment holiday period ends.

Can I use my offset account to keep up with repayments?

Yes. If you have an offset account, you can use it to make repayments on your home loan. However, once offset is used, the amount of interest that is offset (reduced) against your total home loan balance will be impacted.

You might end up paying higher interest on your home loan if you’ve accessed funds in your offset account.

Can I use the early access to super to make mortgage repayments?

If you’ve lost your job or income because of the coronavirus, then the government is allowing early access to your super. This is interest-free and you won’t be taxed on the amount you’ve withdrawn from the super.

While this is not a mortgage relief scheme, the money can be used to make repayments on your home loan.

Australian citizens and permanent residents and even New Zealand residents can apply for early access to super of up to $20,000.

However, accessing your superannuation early will affect your income protection insurance and life/total permanent disability insurance cover.

How can we help as mortgage brokers?

If you are facing financial hardship due to coronavirus, please inform us or your lender immediately.

Here are some ways that we can help as your mortgage broker:

• Refinancing to a lower interest rate or interest only repayments.
• Releasing equity to give you cashflow if your income may be affected.
• Debt consolidation to make repayments manageable.
• Advice regarding your mortgage or buying a new property during the COVID-19 pandemic.

Looking for some help with your mortgage payments?

Our team will be available and working overtime if required. They are working from home for their safety.

Email your Home Loan Experts mortgage broker, call us at 1300 889 743 or fill in our free assessment form.