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There may be some welcome news for distressed Aussie homeowners, with banks extending their offer of mortgage relief to those in need. Find out more about the offer and pay off your home loan sooner.
Mortgage holders who are still struggling financially due to the impact of COVID-19 will be eligible for a further four-month extension to repay their home loans.
The Australian Banking Association says lenders will work with customers to determine who is most in need. The extension will only be available to customers who genuinely need extra time before restarting their mortgage repayments.
The initial six-month loan repayment deferral period is due to end in September.
How does it work?
The extension won’t be applied automatically, instead, it will be determined by lenders on a case by case basis.
Customers who are experiencing financial hardship will be contacted by their lenders as they approach the end of the six-month deferment period.
Where possible, customers will be asked to start making their mortgage repayments.
However, those who are unable to do so will be eligible for an extension on their deferral of up to four-months.
How many people are affected?
The Australian Banking Association says home loan deferrals were granted to just over 480,000 customers. Encouragingly, many customers have already begun making repayments.
However, banks estimate that roughly one-in-five of those customers are in severe financial stress, having lost their principle source of income.
These 20 per cent of customers are likely to need a further extension on their deferral.
What are the downsides of deferring my loan?
A home loan holiday might be right for you depending on your circumstances, however, you do need to be aware of the longer term consequences.
Put simply, it means that any interest that accrues during the deferment period (but is unpaid) is added to your loan balance. This means you could end up with a higher loan balance than when you started the deferment. Once you begin repaying your loan, you may need to increase your mortgage repayments or extend your loan term to cover the extra.
However, for those in real financial difficulty who face the risk of losing their home, this could be the lesser of two evils. Make sure you speak to your lender and ask about their policy on interest capitalisation.
How can I pay off my home loan sooner?
If you’re ready to restart your repayments, congratulations! You’ve survived an incredibly challenging situation. To help you prepare for the future, here are our top tips on how to repay your mortgage sooner.
1. Make fortnightly repayments
Consider making fortnightly repayments. By paying half the monthly amount every two weeks, you’ll pay an extra month’s repayment each year. This can help you pay off your home loan years earlier.
2. Pay more than the minimum
If you can afford to, try to pay over the minimum repayment amount. Or if you switch to a lower interest rate, keep paying repayments at the previous higher rate. These extra repayments can shave years and thousands of dollars off your home loan.
3. Make extra repayments
Putting your tax return or bonus into your home loan can help reduce the interest you pay, saving you thousands of dollars over the life of the loan.
4. Check you’re getting the best interest rate
In a low-interest-rate environment like the one we’re currently in, there’s a lot of competition for your business. So speak to your lender about getting the best possible rate, especially if you’re re-starting your repayments.
5. Use an offset account
By keeping your savings in an offset account, you can reduce the amount of interest you pay on your mortgage. This in turn enables you to pay off your mortgage quicker. For example, if you have a $400,000 mortgage with $25,000 in an offset account, you’ll only be charged interest on $375,000.
For personal financial advice that you can rely on, speak with a certified financial planning professional. A CFP®professional can guide you through options to make your money last longer and secure your finances to bring you peace of mind. Find one today using Match My Planner.
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