What Happens When your Mortgage Deferral Ends?
Last year saw a significant number of mortgage holders make the difficult decision to defer their home loan payments due to unexpected job losses or changes in their employment status. Statistics released by APRA estimated that more than 10% of homeowners chose to defer their repayments with many having expired late last year and some pending the 31 March 2021 deadline.
So, what are your options once the deferral period ends?
Resume paying the loan
Continuing to make repayments on the loan is the ideal strategy given that the debt must be repaid at some stage and the sooner, the better as to delay will only cost you more in the long run. If your position allows, paying more than the minimum required will also aid in offsetting the accrued interest that will have been capitalised on the loan.
Extend the loan term
Some lenders will consider an extension of your loan term which will reduce the minimum required repayment and therefore ease your financial burden. This is a viable short-term solution however it will equate to a greater interest cost over the life of the loan, but it may also mean the difference between keeping your property or not.
Switching to interest only repayments
Depending on your circumstance as well as your lender, there may be the option to switch to interest-only repayments for a temporary time to ease your cash flow burden. This however will also result in paying more interest over the life of the loan so the overall cost will be greater. Lenders do not encourage interest-only loans particularly for owner occupied debt so this will have to be agreed upon in consultation with the institution possibly by way of a payment plan.
Refinance your loan
Refinancing your loan to secure a competitive rate and restructure your lending to save on interest is advisable; however, it may not be an option straight away. Most lenders will need to see a repayment history of 6 months where conduct is sound.
You may be able to refinance internally with your existing lender by way of a product swap once satisfactory conduct is demonstrated, or with an alternate institution should other factors align such as income, equity position and conduct on other debts.
Lenders will generally seek to work with you on a mutually agreeable solution that is right for you and your circumstance should your position still not be ideal once your mortgage deferral period ends. Consulting with them as soon as possible should you be experiencing financial difficulty is key. To find out more information on what options may be available to you, contact one of our team.