Banks extend mortgage freeze

The Australian Banking Association announced that a four-month extension would be available to customers who genuinely need some more time.

This extension to the mortgage deferral is not automatic and will be granted on a case by case basis.

Essentially, the banks will contact customers coming to the end of their six-month repayment pause to determine whether or not you need one.

This extension will only be granted to customers with reduced incomes and ongoing financial difficulties due to COVID-19 who cannot resume their repayments or restructure/vary their loan.

Banks have announced that the repayment pause cannot extend beyond March 2021.

Customers who are yet to apply for loan repayment deferrals are still able to do so if they wish.

Am I eligible for an extension to my mortgage freeze?

Before extending the mortgage freeze, banks will work with you to determine the best options to restructure or vary your loan. These options may include:

• Extending the length of the loan
• Converting to interest-only payments for a period of time
• Consolidating debt
• A combination of these and other measures.

Only if these arrangements are not in place by the end of the six-month repayment pause will customers be eligible for an extension of up to four months.

Throughout this period, customers are expected to work with their bank to find the best solution.

Lenders may call you during the repayment holiday, this is nothing to be alarmed about, as they’re doing this to check in to see how you are going, and discuss extending or ending the repayment deferral depending on your situation.

Should I extend my mortgage freeze?

Not if you can avoid it.

Generally, it is recommended that those who are able to resume their repayments do so at the end of their six-month repayment pause.

In fact, over 20% of deferred loans have recommenced payments, according to the Australian Banking Association.

That’s because the interest on your mortgage continues to accrue and is added on to your home loan balance. Ultimately, costing you more in interest over the life of the loan.

For example, taking a 10-month repayment pause on a $400,000 mortgage could see your loan balance increase to $410,113 (calculated based on a five-year-old loan at an interest rate of 3% p.a. with a loan term of 30 years).

Banks are actively encouraging customers to resume repayments, and many have, in fact, already started resuming their repayments before the end of their deferral period.

Why was the mortgage freeze extended?

The Australian Banking Association CEO, Anna Bleigh, stated: “This next phase of bank support will avoid a ‘cliff’ for customers in September and give them the breathing space they need to work with their bank and get back on their feet financially,”.

She further adds, “Australia’s banks supported their customers as the country entered the COVID-19 crisis and they are determined to support their customers on the way out of the crisis”.

This phase of support was developed together by banks following discussions with APRA and ASIC (with an interim authorisation from the ACCC).

Will extending my mortgage freeze affect my credit report?

If you are granted an extension to the mortgage freeze by your bank, your credit report will not be affected.

Likewise, customers who resume repayments or enter into a new repayment arrangement with their lender will also not see their credit report affected, provided they meet their new repayment plan.

What happens at the end of the mortgage freeze?

As discussed above, at the end of the mortgage freeze, the banks will call you to talk to you about resuming repayments.

Customers still experiencing financial hardship at the end of this period of non-repayment will have the option to restructure or vary their loans.

If an arrangement is not in place by the end of the six-month repayment pause, customers may be eligible for an extension of up to four months.

How to resume my mortgage repayments?

For variable rate customers, they can simply start making their repayments.

You can leave the assistance period in place until its expiry date (so you still have the safety net of the mortgage freeze should you need it during that time).

There is no limit on additional repayments you can make, and any extra repayments you make over the minimum amount will help you reduce the interest you pay over the life of the loan.

However, for customers on a fixed home loan, there is a limit on the additional repayments one can make during the fixed term.

If you make additional repayments above the tolerance limit, you may be charged a break fee (early repayment fee).

Please check your extra repayment limit with your bank before making large extra repayments.

Customers should also make sure that any direct debit (Direct Loan Payments) are set up to automatically resume and that the funds are coming out of the right account.

You should be able to check the status of your direct debit or DLPs by logging in to your internet banking.

Where possible, you should also consider making extra repayments. An extra $100 every month over your minimum repayments can save you $40,000 over 30 years on a $490,000 home loan.

What if I’m still having trouble resuming my mortgage repayments?

Customers facing financial hardship who are unable to resume their repayments should contact their bank’s hardship department and make a hardship request.

The banks will try and work with you to find a suitable solution, which may include:

• Payment plans
• Debt consolidation
• Switching the loan to interest-only for an agreed period of time

You should also contact a free financial counsellor independent of your bank by calling them on 1800 007 007 or through the National Debt Helpline.

Where now for homeowners on mortgage freezes?

For those nearing the end of their mortgage freeze, they’ll have to consider which of the following options suits them best. These options include:

• Restart making repayments
• Extend the loan term to reduce your repayments
• Extend the repayment holiday
• Refinance after a mortgage freeze
• Switch to a fixed-interest home loan
• Switch to interest-only
• Request financial hardship arrangements
• Sell your property

The option most suitable will depend on your individual financial circumstances.

Talk to us!

Talk to one of our specialist mortgage brokers if you’d like to go over all the available home loan options before extending your mortgage freeze.

Call us on 1300 889 743 or fill in our online assessment form.