Westpac extends mortgage assistance for COVID-19 affected households

Westpac extends mortgage assistance for COVID-19 affected households

Westpac has handed struggling homeowners another lifeline, announcing further extensions to its COVID-19 hardship support program.

Currently, Westpac is offering the following hardship relief for its home loan customers:

  • Repayment pause for up to 6 months;
  • Opportunity to switch to interest only from principal and interest; and
  • Opportunity to reduce repayments by 50 per cent.

Eligible customers with interest-only home loan repayments can now apply to extend their term for up to 12 months, offering much needed mortgage repayment relief.

Mortgage holders paying principal and interest can also switch to interest only repayments for up to 12 months.

Will Ranken, Westpac General Manager of Home Loans, said the changes had been “introduced in response to continued customer demand for support with mortgage repayments”.

“We have had more than 115,000 customers defer mortgage repayments as part of our COVID- 19 consumer support package.

“However, we recognise that many customers who have been financially impacted by COVID- 19 still want the option of making some repayments during this time.

“These changes mean it is now simpler for customers to apply to extend their interest only loan term, or switch their repayments to interest only,” Mr Ranken said.

The potential cost of switching

Taking a ‘mortgage holiday’ will help you to save money in the short term. But long term, it may make your loan more expensive due to interest capitalisation.

You may find yourself making higher repayments, or needing to extend your loan term, once the interest-only term ends. This means you may be charged more interest overall.

RateCity analysis found that on a $400,000, 30-year mortgage paying the average variable, owner-occupier rate of 3.45%, switching to interest-only repayments five years into the loan would cost you $4,484 more in interest over the life of the loan. The potential monthly repayment increase after a 12-month interest-only hardship term would be $47.

Impact of switching to interest-only repayments on $400k loan

Increase in: Cost
Monthly repayments after 12-month interest-only term $47
Interest over life of loan if you switch to interest-only for 12 months $4,484

Source: RateCity.com.au. Note: Repayments based on 30-year, $400,000 owner-occupier mortgage paying average variable interest rate of 3.45% if mortgage holder switched to interest-only for 12 months after five years.

That’s not to say that struggling Australians shouldn’t take advantage of hardship support if needed.

It’s important to keep in mind what your repayments may look like after a potential switch to interest-only, so you have time to prepare and budget any potential repayment increases.

I’ve already switched to interest-only, what can I do?

If you find that the potential mortgage repayment increases post-hardship support are too much for your budget, it may be worth considering if switching to a lower rate home loan is a potential option.

Home loan rates are currently at historic lows following five Reserve Bank of Australia cash rate cuts since June 2019.

This means that there are a range of low rate options up for grabs if you’re willing to do a little research and paperwork.

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Learn more about home loans

What is an interest-only loan? How do I work out interest-only loan repayments?

An ‘interest-only’ loan is a loan where the borrower is only required to pay back the interest on the loan. Typically, banks will only let lenders do this for a fixed period of time – often five years – however some lenders will be happy to extend this.

Interest-only loans are popular with investors who aren’t keen on putting a lot of capital into their investment property. It is also a handy feature for people who need to reduce their mortgage repayments for a short period of time while they are travelling overseas, or taking time off to look after a new family member, for example.

While moving on to interest-only will make your monthly repayments cheaper, ultimately, you will end up paying your bank thousands of dollars extra in interest to make up for the time where you weren’t paying off the principal.

How do I calculate monthly mortgage repayments?

Work out your mortgage repayments using a home loan calculator that takes into account your deposit size, property value and interest rate. This is divided by the loan term you choose (for example, there are 360 months in a 30-year mortgage) to determine the monthly repayments over this time frame.

Over the course of your loan, your monthly repayment amount will be affected by changes to your interest rate, plus any circumstances where you opt to pay interest-only for a period of time, instead of principal and interest.

How much are repayments on a $250K mortgage?

The exact repayment amount for a $250,000 mortgage will be determined by several factors including your deposit size, interest rate and the type of loan. It is best to use a mortgage calculator to determine your actual repayment size.

For example, the monthly repayments on a $250,000 loan with a 5 per cent interest rate over 30 years will be $1342. For a loan of $300,000 on the same rate and loan term, the monthly repayments will be $1610 and for a $500,000 loan, the monthly repayments will be $2684.

How can I calculate interest on my home loan?

You can calculate the total interest you will pay over the life of your loan by using a mortgage calculator. The calculator will estimate your repayments based on the amount you want to borrow, the interest rate, the length of your loan, whether you are an owner-occupier or an investor and whether you plan to pay ‘principal and interest’ or ‘interest-only’.

If you are buying a new home, the calculator will also help you work out how much you’ll need to pay in stamp duty and other related costs.

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

Interest Rate

Your current home loan interest rate. To accurately calculate how much you could save, an accurate interest figure is required. If you are not certain, check your bank statement or log into your mortgage account.

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

What is the best interest rate for a mortgage?

The fastest way to find out what the lowest interest rates on the market are is to use a comparison website.

While a low interest rate is highly preferable, it is not the only factor that will determine whether a particular loan is right for you.

Loans with low interest rates can often include hidden catches, such as high fees or a period of low rates which jumps up after the introductory period has ended.

To work out the best value for money, have a look at a loan’s comparison rate and read the fine print to get across all the fees and charges that you could be theoretically charged over the life of the loan.

What is 'principal and interest'?

‘Principal and interest’ loans are the most common type of home loans on the market. The principal part of the loan is the initial sum lent to the customer and the interest is the money paid on top of this, at the agreed interest rate, until the end of the loan.

By reducing the principal amount, the total of interest charged will also become smaller until eventually the debt is paid off in full.

How long should I have my mortgage for?

The standard length of a mortgage is between 25-30 years however they can be as long as 40 years and as few as one. There is a benefit to having a shorter mortgage as the faster you pay off the amount you owe, the less you’ll pay your bank in interest.

Of course, shorter mortgages will require higher monthly payments so plug the numbers into a mortgage calculator to find out how many years you can potentially shave off your budget.

For example monthly repayments on a $500,000 over 25 years with an interest rate of 5% are $2923. On the same loan with the same interest rate over 30 years repayments would be $2684 a month. At first blush, the 30 year mortgage sounds great with significantly lower monthly repayments but remember, stretching your loan out by an extra five years will see you hand over $89,396 in interest repayments to your bank.

What are extra repayments?

Additional payments to your home loan above the minimum monthly instalments, which can help to reduce the loan’s term and remaining payable interest.

Mortgage Calculator, Repayment Type

Will you pay off the amount you borrowed + interest or just the interest for a period?

What is a fixed home loan?

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.