Due to the coronavirus pandemic, customers might lose their jobs and working hours, and face financial hardship.

Banks and lenders have announced various mortgage relief schemes to help their customers during this period.

What is financial hardship?

With the global coronavirus pandemic, banks and lenders are stepping up to assist customers who are affected financially.

If you have a home loan, struggling to make repayments for a specific period of time is considered to be financial hardship.

What mortgage relief schemes and options are available?

Here are some ways banks and lenders are helping customers with home loans who are facing financial difficulties due to the coronavirus:

  • Deferring scheduled loan repayments, also known as a repayment holiday or mortgage holiday.
  • Offering interest-only repayments.
  • Access money in redraw.
  • Waiving fees and charges.
  • Adding overdue repayments to the balance of your loan, so you are no longer in arrears and being charged late fees.
  • Extending the loan term to reduce the amount of repayments.

Not all banks and lenders will have a coronavirus specific relief package prepared. However, they still have standard policies in place to help those who are facing financial hardship for any reason.

The CEO of the Australian Banking Association, Anna Bligh said, “Banks stand ready to support customers, and if anyone is in need of assistance, they shouldn’t wait but come forward as soon as possible.”

The Australian Prudential Regulation Authority (APRA) confirmed it will temporarily ease its guidance for changes to existing loan terms, which includes converting principal and interest (P&I) to interest-only (IO) loans and extending loan terms.

However, if the change from P&I to IO happened “without normal serviceability assessment,” then the interest only period cannot exceed 12 months.

Full serviceability assessments will still remain for new lending.

Taking a mortgage holiday

It is also known as a mortgage freeze or repayment holiday, and banks will allow you to stop your mortgage repayments for a limited time period, usually between 3 to 6 months.

Banks have announced a further four months extension (10 months in total) for those customers genuinely in need of some more time.

The downside is, even if you don’t make repayments on your home loan during the period of the repayment holiday, the interest will continue to accrue.

You will need to pay it off once the repayment period begins again or the loan term is extended.

Extend your loan term

If your loan was set up some time ago then there may be 15 years or 20 years until the loan is paid off. By extending the loan term out to 30 years this reduces the size of the repayments.

The downside of this option is that you will end up paying much more in interest and may not pay off the loan before you retire.

For this reason it’s best to set a reminder for 1 – 2 years from now when you are in a better financial position to call your lender and shorten the loan term again.

Switch to interest only repayments

Many lenders will allow you to switch to just paying the interest on your loan for the next year or two. This will reduce the size of your repayments.

The downside of this is that you will pay more in interest over the term of your loan. Secondly your repayments will be higher after the interest only period ends. However this is very effective at reducing your repayments in the short term.

The Australian Securities and Investments Commission ASIC has announced that that lenders and mortgage brokers are not required to assess the suitability of interest only repayments when a customer switches to this repayment type.

Ususally, lenders and mortgage brokers are required to confirm your income to switch to interest only payments. Under the current scenario where people are losing their jobs, the income assessment is not a requirement.

RBA governor, Philip Lowe stated, “What I am focused about is people getting jobs and income security.”

If people have got their jobs back and income back, then people will be able to pay their mortgages back. The fact that people have a bit more interest to pay over their loan – which could be another 15 years or so, spread out – that’s entirely manageable if you’ve got a job and if you’ve got your income.“, he added.

Use your redraw

Approximately 80% of Australians are more than one year ahead with their repayments. Through internet banking or by calling your lender you can access these funds and transfer them to your loan account.

The downside is that you will take longer to pay off your loan and will end up paying more in interest. However, this avoids the need to apply for a repayment deferral. Be careful as some loan types, such as fixed rate loans, may not allow you to access your extra repayments.

Switch to fixed then apply for a repayment holiday

Currently fixed rates for 1 – 3 years are incredibly cheap by historical standards, and are often well below variable rates.

You can do the following:

  • Redraw any extra repayments from your loan into your bank account (this is often not allowed if you are fixed).
  • Read our page on the risks of fixing your rate.
  • Ask your lender if they allow repayment deferral on a fixed rate loan.
  • After considering if this is appropriate, then switch to a lower fixed rate loan.
  • Then apply for a repayment holiday / repayment deferral.

By doing this you get a lower rate and a repayment holiday which means that you are in a much stronger position. Fixing your rate has risks so it’s important that you consider this option carefully before proceeding.

Alternatively, if you’re currently on a repayment holiday, please read our guide on refinancing your home loan after a repayment holiday to go over your options.


FAQs on mortgage relief options

What are my options after the repayment holiday ends?

Customers coming to the end of their mortgage deferral period in September have several options which includes extending the deferral, resuming repayments, switching to interest only and other options.

We weigh the pros and cons of each option on our page, ‘After The Mortgage Payment Deferral Ends’.

Does repayment holiday mean my loan term is extended?

No, in most cases, the loan term will remain the same. You end up repaying a higer amount once the repayment holiday period ends.

However, there are banks and lenders who can help you extend your loan term after the repayment holiday period ends.

Since I’m on repayment holiday, what happens to my redraw?

If you have funds available in redraw, the minimum repayments from the date the repayment holiday starts will be held. You will not be able to access these funds during the repayment holiday period.

Will deferring loan repayments affect my credit rating?

No.

The Australian Prudential Regulation Authority (APRA) has noted that repayment holidays would not count as “mortgage in arrears” so it would not be recorded on your credit file.

Even if borrower has taken up the repayment deferral, the home loan will not be regarded as restructured.

However, this is only applicable if the borrower has been meeting their repayment schedules and chose to take up the offer of a repayment holiday due to COVID-19.

In case of a joint account, can one of us apply for a mortgage freeze since only one of us is experiencing financial difficulity?

Yes, you can. Even if there’s only one person who’s expericing financial hardship, you can still apply for a repayment holiday.

Does repayment holiday mean my loan term is extended?

No, in most cases, the loan term will remain the same. You end up repaying a higer amount once the repayment holiday period ends.

However, there are banks and lenders who can help you extend your loan term after the repayment holiday period ends.

Can I use my offset account to keep up with repayments?

Yes. If you have an offset account, you can use it to make repayments on your home loan. However, once offset is used, the amount of interest that is offset (reduced) against your total home loan balance will be impacted.

You might end up paying higher interest on your home loan if you’ve accessed funds in your offset account.

Can I use the early access to super to make mortgage repayments?

If you’ve lost your job or income because of the coronavirus, then the government is allowing early access to your super. This is interest-free and you won’t be taxed on the amount you’ve withdrawn from the super.

While this is not a mortgage relief scheme, the money can be used to make repayments on your home loan.

Australian citizens and permanent residents and even New Zealand residents can apply for early access to super of up to $20,000.

  • You can access up to $10,000 until 30 June 2020.
  • You can access a further $10,000 from 1 July 2020 until 24 September 2020.

To be eligible, the following one or more of the following requirements must be met:

  • You are unemployed.
  • You are eligible to receive JobSeeker payment, youth allowance for JobSeeker payments, parenting payment, special benefit or farm household allowance.
  • On or after 1 January 2020, you were made redundant, or working hours reduced by 20% or more.
  • For a sole trader, your business has suspended or there was a 20% or more reduction in turnover.

Temporary residents can access up to $10,000 of their super until 30 June 2020.

To be eligible for $10,000 early access to super as a temporary resident:

  • You hold a student visa for 12 months or more and you cannot meet immediate living expenses.
  • You are a temporary skilled work visa holder and still employed and cannot meet immediate living expenses.

However, accessing your superannuation early will affect your income protection insurance and life/total permanent disability insurance cover.

This is the last option you should choose if you’re suffering from financial hardship because accessing the super means you have limited retirement funds and insurance benefits.

How can we help as mortgage brokers?

If you are facing financial hardship due to coronavirus, please inform us or your lender immediately.

Here are some ways that we can help as your mortgage broker:

Our team will be available and working overtime if required. They are working from home for their safety.

Email your Home Loan Experts mortgage broker, call us at 1300 889 743 or fill in our free assessment form.

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