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.
- Not sure what hardship relief your bank is offering? Check out RateCity’s COVID-19 bank support & lender relief page.
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
|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.
- Considering refinancing to a lower rate loan? Speak to an expert today.