A mortgage is among the biggest expenses for many Australian households – but many were left struggling to meet their monthly housing payments as the COVID-19 pandemic wreaked havoc on the country’s economy last year.
Home loan customers were offered a reprieve by banks and financial institutions. They offered a reprieve to mortgage holders who were in financial difficulty and allowed them to stop paying their loans for six months. This was effective from March 2013. This is also known to be a repayment vacation. For those who are in severe financial hardship, the program was extended by four more months.
Soon, the extension will end and deferred borrowers can start paying again. There are still uncertainties for those still in financial difficulties. These are crucial points to remember when mortgage deferrals come an end.
Are you eligible to receive a mortgage extension
To help homeowners and businesses deal with the economic impact of the pandemic, the Australian Banking Association (ABA), along with the country’s banks, implemented COVID-19 mortgage deferrals. The original plan was to have the scheme run from March 2020 through Sept 2020. However, borrowers who are still having difficulties paying their loans were allowed to prolong their eligibility.
The Australian Prudential Regulation Authority (APRA) states banks can extend mortgage holiday periods for up to 4 additional months. This is to allow them a maximum of 10 additional months from the date they deferred or 31 March 2021 whichever comes first.
And with the March deadline approaching, some of the country’s major banks have stopped giving automatic mortgage holidays and have begun asking borrowers to start repaying their home loans.
One of the four largest banks, the National Australia Bank (NAB), was the first to stop accepting mortgage deferrals, effective 21 January. The rest – Commonwealth Bank of Australia (CBA), Australia and New Zealand Banking Group (ANZ), and Westpac – have yet to announce a date when they will stop accepting new deferrals.
All four banks said that they would continue offering assistance to clients in crisis cases on a case-by case basis.
What should you do if you can’t afford to resume mortgage repayments?
It is time to review your financial situation now, as the deadline to defer mortgage payments approaches. You should notify your bank or lender if you feel that you require more time to repay your mortgage.
According to the ABA banks will work with customers to find a solution for loan modifications or restructurings. These are the options suggested by the trade association:
1. The loan term can be extended
This will enable you to pay off your loan faster. If you extend the loan term, you will be charged more.
2. Making the switch to interest-only payments
You can adjust your finances to be able to make monthly mortgage payments by paying the interest portion in installments. A five-year interest-only period is typical. Your agreement with your bank might allow for a longer term. You will however pay more interest over the loan’s term. Additionally, your home’s equity will not increase during the interest-only period.
3. Consolidating your debt
Consolidating debt is possible if there’s enough equity in your property. Instead of making smaller payments you can pay it off in one lump sum. This will simplify your finances and reduce interest rates.
Banks may recommend that you combine these strategies with another strategy to help pay your mortgage.
If none of the options work for you, your lender may grant a hardship modification. You can request a hardship variation to modify the terms of your loan or temporarily suspend/reduce your payments during difficult financial times.
When can you begin making mortgage payments?
It is best to answer this question as soon and as accurately as possible. The mortgage holiday does not offer permanent relief from your home loan problems. Mortgage deferrals are subject to interest on the principal amount. This is the main problem. This could cost you thousands of dollars in the long-term. It is possible to save interest by resuming your mortgage repayments sooner.