Anthony O’Brien investigates the best strategies to manage your home loan in the tougher times ahead.
February 24, 2010
Chances are you’re going to be living with your home loan for quite a while. And that means being able to handle the mortgage in good – and not so good, times.
There can be times when living with your home loan seems like hard work. You may want to take a career break, enjoy time out of the workforce to raise a family, or, heaven forbid, you may lose your job.
On these occasions it’s worth considering the range of options offering mortgage relief.
One of the least dramatic alternatives is reverting to interest-only repayments. On a loan of $350,000 charging 6.5 percent interest p.a. this could reduce your monthly repayments from $2,363 to around $1,895 – boosting your cash flow by about $468 each month.
If cash is really tight, it may be worth requesting a ‘repayment holiday’. This is where your lender lets you take a break from repayments, usually for between two and 12 months. The catch is that you may need to be ahead with your loan repayments to be eligible.
Do note, the repayments may come to a temporary halt but the interest meter keeps ticking over. The mounting interest charge will be added to the balance of your loan, and that can mean you need to pay off more each month when you recommence repayments, or face an extended loan term.
Relief may also be available if you’re suffering a temporary setback through unemployment, illness or injury. Under these circumstances you should ask your lender about ‘mortgage hardship variations’.
In June 2009, all retail banks, building societies and credit unions signed up to the Federal Government’s new mortgage hardship principles, designed to assist borrowers experiencing financial difficulty because of the global economic downturn. It calls on lenders to change the terms of a mortgage to reflect changes to the borrower’s personal circumstances.
Some of the options home loan lenders will consider under mortgage relief include:
- Postponing repayments on the loan for up to 12 months
- Extending the term of the loan, which means lower repayments
- Offering interest-only repayments for a short period; or
- Waiving certain loan fees.
The important thing is to get in touch with your mortgage lender to request a variation as soon as you’re aware you’re likely to experience difficulty keeping up the repayments. Don’t wait until you’re falling behind. Giving your lender advance notice will help you maintain a healthy credit record – meaning you’ve got a better chance of achieving approval for further credit in the future when your circumstances have improved.