Back in March 2020, Australia’s big banks and other mortgage lenders offered to let mortgage holders defer their home loan repayments and relieve some of the financial pressure from the pandemic. With the initial six-month time limit now coming to an end, many Aussie mortgage holders are now facing a choice of what to do next.
Here are just a few of the potential options that are available to choose from:
Go back to paying in full
Some mortgage holders have already returned to making their regular repayments, following the three-month review of their finances that was a part of many mortgage holiday offers. If your own income is now stable, and you’re comfortable doing so, you may also be considering returning to your pre-pandemic mortgage repayments.
Getting back to making principal-and-interest payments may help to minimise your mortgage’s overall cost, as you’ll be making progress towards paying off your property. The faster you can clear your debt (for example, by making extra repayments), the less interest you’ll be charged on your loan in total.
Switch to interest only
If you can’t yet afford to return to principal and interest repayments, you may have the option to just pay the interest charges on your home loan for a limited time. These lower repayments may help keep the pressure on your household finances relatively low.
Interest-only payments won’t bring you closer to paying off your home, so your mortgage may ultimately cost you more than making principal and interest repayments. But at least the interest charges won’t be capitalised into the loan any longer, which can further increase the total cost of your mortgage.
Refinance to another lender
Ever since the Reserve Bank of Australia’s (RBA’s) emergency rate cut in March 2020, banks and mortgage lenders have been slashing interest rates left and right. If you may struggle to afford the interest payments with your current lender, perhaps it could be time to see what else is out there. You may also be able to negotiate with your current lender to see if you could get a discount on your home loan interest rate.
Before you refinance, you may also want to check that you have enough equity available in your property to avoid being hit with Lender’s Mortgage Insurance (LMI). It may also be worth checking if there are fees to pay when you refinance, which could affect the value of your new loan.
Extend the mortgage holiday
Not everyone has gotten through the pandemic so far unscathed. Australians who have lost jobs or been unable to work due to social distancing restrictions may not yet be in a position to be making mortgage repayments.
With this in mind, Australia’s banks have offered the option to further extend mortgage holidays for up to another four months, until the end of March 2021. While extending a mortgage holiday means capitalising more of your home loan’s interest charges, making it even more expensive in the long term, it may be an essential option for some Australians to stay afloat in the short term.
Dig into your savings, offset, or redraw
If you have an emergency fund squirrelled away somewhere, this could be an opportunity to put your money to work, by using part of your savings to help manage your mortgage payments.
Extra repayments you’d previously made onto your mortgage, or money you’d deposited in an offset account, could also potentially be used to help cover your repayments, depending on your lender and your financial situation.
While regulators expect banks to exhaust all possible options to keep Australians in their homes, a time may come when it’s no longer a worthwhile option. Banks have warned that selling the family home could become an option for some Australians, who may need to downsize, live with family or friends, or return to renting for a time.
What should you do?
The best option for you may not be the most obvious one, or even one that’s listed here. Before you make any decisions, you may want to contact your bank and find out what they may be able to offer you. Depending on your situation, you may be able to negotiate with your lender and get a better deal.
For more help, consider contacting a mortgage broker or a financial counsellor for advice. And if you’re in serious financial trouble, the National Debt Helpline is available: 1800 007 007.