COVID-19 and social isolation have got everyone stressing about many things, money being a big one. For those who have had to close business, were laid off work, or had their hours reduced, the reality is even more concerning as they find alternative ways to make ends meet. If you are in the middle of repaying a mortgage, you may be wondering if it’s worth hitting pause on your repayments. The top major banks are allowing deferments, but does that mean it’s something you should do?
What kinds of deferrals are there?
Some banks are now offering a six-month deferral on mortgage repayments and other loans without affecting your credit rating, considering you were on time with your payments before this. If the current situation has impacted your finances, speak to a mortgage broker first before agreeing to anything with your bank. The sooner the better!
Pros and cons of deferring a mortgage repayment during COVID-19
Putting off your mortgage repayments may appear to be the obvious choice, especially when there may be other more urgent matters that need your financial focus. However, you should weigh the pros and cons before coming to a decision.
- Pros
- Pausing payments allows you to focus on more urgent bills
- No negative impact on your credit score
- Support available for other loans and credit card repayments
- Cons
- Interest will still accrue while the deferral is active, and will be added to the total amount owing
- After the deferral ends, you may have to make bigger and more frequent repayments than before – this could mean a more expensive mortgage
- The loan terms may not have changed, so you will still need to pay off your mortgage over a reduced amount of time
Before you decide on whether to put your mortgage repayments on hold, it is important that you fully understand the terms outlined by your bank and that you’re able to resume your repayments once the deferral is over. If you’re not sure on the steps you should be taking, speak to a mortgage broker who can help.
What evidence must I present to the bank?
If the COVID-19 outbreak has caused you to lose your job, then you are likely to be eligible for a deferral. Some banks do not require evidence to prove your case, while others decide on a case-by-case basis. Keeping documents like your termination letter provides proof of your income loss.
Will I be charged interest during the deferral?
While you don’t have to make payments while your mortgage is on hold, the interest will continue to accrue. Once the deferral ends and the repayment resumes, the amount outstanding and the accrued interest must be paid off over the loan period. Some banks may allow a loan extension, but this needs to be verified directly with each bank.
I’m still a little confused – how do I get started?
You can start by reaching out to a mortgage broker who will be able to provide you with some options. Then, reach out to your bank either through their website or app which should have all the information you need on the services they’re offering. Otherwise, you can get in touch with them via their customer service line. Some banks may have even extended their operating hours to accommodate the influx of enquiries. Avoid going down to their physical branch as some banks would have limited staff and onsite services due to the social distancing regulations. Give them a call in advance to be sure.
I am not signed up for internet banking – should I start?
Definitely! Managing your account on your mobile has never been easier and it saves you so much time. The bank’s website or app should have the information you need to get started but if you’re still unsure, give the customer service centre a call and they’ll be able to sign you up over the phone.
If you’re experiencing financial hardship as a result of COVID-19, we understand how overwhelming and difficult these uncertain times can be. Try not to panic and know that help and support are available. The team at FutureNow Finance can advise you in this area and discuss solutions that suit you best. Call 1300 013 730 or email hello@futurenowfinance.com.au