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COVID-19: Mortgage repayment holiday support

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With the local onset of COVID-19, all aspects of everyday life are changing very quickly for Australians.

In the last week alone, the Government announced a second economic stimulus package, the RBA cut rates for a second time within the month, and banks have expanded their support for people in financial hardship and in many cases made this easier to access.

Let’s break it down and look at what this means financially for homeowners and investors.

What did the RBA do and what does this mean for borrowers?

After a second rate cut, the official cash rate now sits at 0.25%. While many major banks were quick to respond to the March 3 rate cut, passing it on in full. The second rate cut however has seen a less uniform response with some lenders reducing fixed and variable rates to different degrees.

Make sure you know what your new rate will be and if it is still competitive. Many banks are now offering owner occupier borrowers, with an LVR less than 80 paying P&I, variable and fixed rates well below 3%. If your rate still starts with 3 it’s time to review your rate.

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Repayment holidays

A number of lenders, including Commonwealth Bank, ANZ, Westpac, National Australia Bank, Bank Australia, Bendigo and Adelaide Bank, Heritage Bank, La Trobe Financial, have announced they are offering repayment holidays, ranging from three to six months to home loan customers who find themselves in financial hardship as a result of COVID-19. Many lenders have confirmed that a borrower’s credit score will not be impacted if they have been granted hardship assistance.

For some, taking a repayment holiday will be essential but never underestimate the value of getting expert guidance so you understand all terms and conditions and what this means once the repayment holiday is over.

Some things to consider:

  • Can you negotiate a lower rate before taking the holiday?
  • Are there any clauses preventing you from refinancing after the repayment holiday?
  • How will it impact your loan term or the size of your repayments in six months time?

You need to know all the details so there are no surprises three or six months down the track.

Moving to minimum repayments

Some banks such as CBA are automatically moving all variable P&I customers to the minimum repayment amount from May 1.

While this is a relief for those who are already feeling the strain of these uncertain times, it might not be the best option for everybody.

The downside of minimum repayments

A reduction in your minimum repayments means you'll pay more interest over the life of the loan. If you are lucky enough to be able to maintain your pre-COVID-19 repayment level, then you might want to look at doing this for as long as feasible by opting out of these automatic adjustments or by putting the difference into an offset account.

Which lenders are offering home loan support?

CBA:

  • CBA is automatically moving all variable P&I home loan customers to the minimum repayment required within the borrower’s loan contract from May 1. Borrowers can opt out if they want to maintain their current repayment amount.
  • For fixed rate customers, an interest rate cut of 70 basis points for 1, 2 and 3 year fixed owner-occupied principal and interest loans to 2.29% for both new and existing customers from 1 May.
  • A mortgage repayment holiday or deferral of up to 6 months.

ANZ:

  • Variable home loan rates have been cut by 15 bps, as of 27 March 2020.
  • Offering a 2 year fixed rate of 2.19% for owner-occupiers paying principal and interest.
  • If you are financially impacted by COVID-19, ANZ may allow you to put your home loan repayments on hold for up to six months. ANZ will check in with you after 3 months.

Westpac

  • Offering a 2.29% fixed rate home loan for 1, 2 and 3 years for owner-occupied customers paying principal and interest, effective Friday, 27 March 2020.
  • A 3 month mortgage repayment deferral (repayment holiday) for customers who have suffered loss of income or lost their job as a result of COVID-19. There is also an option to extend for a further 3 months after a lender review.

NAB:

  • Mortgage repayment holidays for up to 6 months.
  • Customers also have the option of reducing repayments on their variable rate home loans.
  • Cutting fixed home loan rates by 60 basis points.

Macquarie Bank

  • 25 basis points off 1, 2 and 3 year fixed rate loans
  • Option to switch to a repayment holiday or interest only

ME Bank

  • 2 and 3 year fixed rate loans from 2.29% for owner occupiers paying principal and interest
  • Option to switch to a repayment holiday or interest only

Suncorp

  • 2 year fixed rate loans from 2.29% for owner occupiers paying principal and interest.
  • Repayment holidays available for affected customers

Here’s what you’ll need to consider before making any changes to your home loan.

  • Is this change really in your best interest over the longer term?
  • If you pause your repayments, you may not be able to refinance for 6-12 months. Make sure you have checked this with your lender.
  • Will this impact your credit file?
  • How will this impact your loan term? Will you pay more interest in total over the life of our loan?

Should I refinance to a lower rate first, and then take a repayment holiday?

It will depend on your individual circumstances but this option could be a good way to secure a competitively low rate while also easing the financial burden if your income is affected by COVID-19. Discuss your options with one of our experts here.

With so much going on and so much information to absorb, it is important to fully understand the longer term implications of making adjustments to your home loan repayments. If you’d like guidance on what your bank is doing and your options, speak to an expert today. We are here to help.

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What is the Government doing to help households?

To date, the Federal Government has announced two stimulus packages worth $83 billion. Within this there are measures aimed at businesses as well as individuals to provide greater financial security to both employers and their people through this period. The aim is to keep people in jobs and support those who face unemployment as a result of the economic impacts of COVID-19.

Some of the key measures being implemented to support households are -

  • Welfare payments have been increased
  • waiting times and asset tests for JobSeeker Payments have been waived,
  • Jobseekers, casuals and sole traders will be able to access their superannuation funds early if required as a result of COVID-19.

Although accessing your super now might seem like a good fix, again it is crucial to understand what this will mean long-term and if there is a better alternative.

When did you last check your rate?

If your rate is older than January 2019 or it still starts with a 3, you could be overpaying by thousands of dollars every year. Now is the time to find yourself a better deal so you can have some financial comfort and our experts are here to help.

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Got a home loan question?

We're here to help. Get free expert advice at a time that suits you. Choose a time to chat with a Home Loan Specialist here.

The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

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Tags: rba cash rate, reserve bank, interest rate, refinance, new purchase

Check today's low rates

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Check today's low rates

Tell us what you are looking for and see if you can save.

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Important legal stuff

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# Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
Lendi is a privately owned and operated Aussie business. Our mission is to provide Aussies with the right experience when choosing a home loan from our panel of lenders including ClickLoans, a related body corporate of Auscred Services. Although Lendi compares over 1600 products from over 35 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. While Lendi is 40% owned by founders and employees, we have also been supported by some great minority shareholders including Bailador, Macquarie Bank Ltd and a number of Australian sophisticated investors. We have an independent and founder led board.
WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years. Fees and charges apply. All applications are subject to assessment and lender approval. Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
EXAMPLE: This example is current as at 20th October 2016. A Click Loans Online Principal and Interest Loan of $150,000 over 25 years has monthly repayments of $767. This is calculated based on the interest rate of 3.69%, comparison rate of 3.69%, upfront fees of $0 and annual fees of $0.
IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria.
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