Almost one in ten (9%) of all housing loans are still on a repayment holiday, according to data released by the Australian Prudential Regulation Authority (APRA) as of 31 August 2020.
However, for the second month in a row, the number of customers exiting mortgage deferrals has outpaced those requesting them.
As more and more customers come to the end of their six month deferral period, customers need to consider what happens if they want to refinance their home loan after a repayment holiday.
Can I refinance my home loan after the repayment holiday?
Yes. Many customers will get jobs again late this year and will want to refinance to clean up debts / get back on their feet.
Only a handful of lenders have confirmed their policy, but generally to refinance after a repayment holiday:
- Major lenders will want at least 3 to 6 months of perfect repayments on your home loan to consider your application.
- Specialist lenders will consider your home loan refinance application at a higher rate as long as you’re able to make repayments now.
- A refinance is not possible if your income has not returned and you cannot afford the loan. Because under responsible lending guidelines (NCCP Act), it’s illegal to give customers a loan that they cannot afford.
The key to approval will be applying with the right lender based on your individual circumstances.
Instead of waiting for the repayment holiday to end, carefully go over your options now, so you’re better prepared to take action when it does eventually end.
To go over your options, please talk to one of our specialist mortgage brokers, by giving us a call on 1300 889 743 or by filling in our online assessment form.
How do I qualify with a major bank at a competitive interest rate?
Major lenders will want at least 3 to 6 months of perfect repayments on your home loan post repayment holiday to consider your application. Some lenders only want a 3-month history, but this is just a few, and likely they will change this policy to avoid getting inundated with new applications.
Most major lenders will also want to see:
- Perfect on-time repayments on your home loan for at least three to six months after the end of the mortgage deferral.
- An explanation for taking up the repayment holiday and how the funds were used.
- More importantly, you must not have missed repayments prior to the repayment holiday.
Please note that all other standard checks such as income and servicing (borrowing power), credit score etc. must be met.
Do I qualify for a refinance with a specialist lender?
One of our specialist lenders will consider customers for a refinance after you’ve made just one single on-time repayment post the mortgage deferral.
Specialist lenders will consider each customer on a case by case basis. They use common sense when assessing each application for a refinance albeit at a higher interest rate.
To build a strong case with a specialist lender, you should provide:
- An explanation on why the repayment holiday was requested.
- Confirmation that repayments have resumed as per contractual obligations.
- Explanation on what has changed to allow you to commence repayments on a new home loan.
Our specialist mortgage brokers know the ins and outs of the lending policy of 50+ lenders on our panel. They can also help choose the right lender and build a strong case for refinancing post repayment holiday.
Please talk to one of our specialist mortgage brokers by giving us a call on 1300 889 743 or by filling in our online assessment form to find out if you qualify.
Current lender policies on home loans after a repayment holiday
Most lenders still haven’t announced their policy on refinancing a home loan after the COVID-19 induced repayment holiday, so no one knows what to do as of yet.
However, based on current policy:
- Lenders are unable to refinance your loan if you’re on a repayment holiday at the moment.
- You can terminate your repayment holiday with your current lender anytime.
- Lenders may be able to consider refinancing if you can show a good repayment history post repayment holiday. (how long is a bit of unknown as of now).
- If you have had missed payments prior to the repayment holiday, lenders may consider this is an adverse feature, and likely your credit report may have been compromised.
One of our major lenders has announced that for customers wishing to refinance their home loan who have needed to request a repayment pause, there are additional requirements. They include:
- An explanation for the repayment pause must be provided. This explanation should include, the reason for the repayment pause, start and end date (if applicable) of the repayment pause, and what has changed to allow the applicant to commence repayments on a new home loan.
- Documentary evidence may be sought where the comments and/or statements provided do not support that a repayment pause has been approved (e.g. mortgage arrears, overdue fees etc appear on statement etc.)
- Standard policy applies if there are any arrears or missed repayments prior to the start date of the repayment pause.
Please note that, as with all applications, all other standard conduct, income and servicing (borrowing power) requirements must be met.
Other lender’s policies may differ from this.
How do I get approved for a home loan after the repayment holiday?
The number one tip to getting approved after the repayment holiday is to not to miss any repayments, especially if you want to refinance at a competitive rate.
Staying on top of your home loan repayments is absolutely critical!
After that, in a broader sense, in light of the economic impact of the pandemic, it’s about mitigating risks for the lender. When they see a risk, you need to calm them down.
- Apply with the right lender. Mortgage brokers can help because they know what’s happening with each lender. Most lenders aren’t making exceptions to their lending policy, so apply with a lender that you fit with rather than trying to put a square peg through a round hole.
- Submit good notes. Especially around your income. Is your income safe? How would they know? Submit detailed notes with your application.
- Submit additional documents. Prove that you are a good borrower. If they ask to see your last 6 months repayment history, then provide 2 years. That’s assuming you have a good history! Don’t shoot yourself in the foot by giving more info if it makes you look bad.
- Submit a letter from your employer confirming that they have no intention to reduce your hours helps a lot.
Being prepared and applying with the right lender will be key!
We expect a rush of people scrambling to go over their options when the repayment holiday comes to an end, so don’t wait too long.
What are my options after the repayment holiday ends?
When around 400,000 plus home loans come out of the repayment holiday around August and October, the first challenge facing homeowners will be staying on top of their home loan repayments.
Your options include:
- Extending the repayment holiday.
- Refinancing and consolidating debts.
- Switching to interest-only repayments.
- Borrowing additional funds.
- Selling your property.
Will banks extend the repayment holiday?
Banks had originally extended mortgage freezes in 2020 for an additional four months (10 months in total) for customers who genuinely needed some more time. That has now expired.
However, the big four banks (ANZ, CBA, Westpac and NAB) have announced new mortgage repayment deferrals for customers significantly affected by the current lockdowns or recovering from recent lockdowns irrespective of geography or industry.
You can learn more about the repayment holiday extension here.
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.
What documents will I require to refinance after a repayment holiday?
Aside from the usual home loan documents required when refinancing, such as identification, bank statements and payslips/tax returns, banks may also require you to explain why you were on a repayment holiday.
For example, if you were put on reduced hours due to COVID-19, and have since been put back on full-time employment, they would require evidence of this increased income and/or an employment letter.
Can other banks see that I was on a repayment holiday?
Yes, when refinancing, lenders ask for your home loan statements to verify regular payments. So, they’ll be able to see that you were on a repayment holiday.
What happens to my repayments when my repayment holiday ends?
With most lenders, to catch up on the repayments, you paused, your repayments will be adjusted at the end of your repayment holiday. Your repayments could increase because you’ll be paying off a higher balance in the same period of time.
You can use our repayment holiday calculator to calculate your repayments after the pause.
Though, with a few lenders, if you’re making principal and interest repayments, you may also have the option to extend your loan term by six months. This means you’ll have more time to pay off your loan, but the new repayment amount could still be higher than the current amount because interest is being charged on the loan for a longer period.
Should I end my repayment holiday early?
Fortunately, the economic impact of COVID-19 won’t be as bad as first predicted! So, if your income has not been impacted by the crisis, then it may be better to end your repayment holiday early as this will save you more on interest over the life of the loan.
A few hundred CBA customers have chosen to end their repayment holidays earlier, and the bank is actively encouraging other customers not financially affected to end it sooner as well.
So carefully consider your financial situation before making that decision.
Are banks still lending?
The banks are still lending but are more conservative than before.
The first risk for the banks is income types, i.e. casual, contract, overtime, commission and bonus income is restricted by some lenders. Many lenders haven’t changed their policy with this, surprisingly.
The second risk they see is that property prices may fall. So some are reducing the LVR (loan to value ratio), being the percentage of the property value that they will lend. Overall there’s still plenty of options.
So overall mortgages are still available; it’s just navigating a new environment.
The key to approval will be applying with the right lender as lender policies are expected to differ significantly.
Are you looking to refinance your home loan after a repayment holiday?
We expect a rush of people scrambling to go over their options when the repayment holiday comes to an end, don’t wait.
Please talk to one of our specialist mortgage brokers to go over your options, by giving us a call on 1300 889 743 or by filling in our online assessment form.