In light of recently introduced widespread COVID-19 restrictions, a number of Australian lenders have expanded support options for their home loan customers. This includes allowing eligible borrowers to defer their home loan repayments.
Home loan deferral is one way that struggling borrowers can deal with their financial hardship. In this article we’ll explain what it is, when to consider it, the pros and cons, as well as your alternative options.
Home loan deferral is a formal, specified period of time where a borrower does not need to make repayments on their mortgage. In order to do this, borrowers must apply and obtain permission from their lender. If you just stop making repayments without speaking to your lender, you could risk defaulting on your loan, damaging your credit score, and even losing your property.
Home loan deferral is usually uncommon, but has increased in 2020 and 2021 due to the COVID-19 pandemic impacting the incomes of many homeowners. Lenders understand this and many have made the path towards home loan deferral more accessible.
Something to note is that if you choose to defer your home loan, you will still have to repay your loan in full eventually. Additionally, interest still accrues during a deferral period.
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Home loan repayment deferral is not a decision to make lightly, but there are a few situations where it may be worth considering. These may include:
Naturally, not all of these situations will automatically mean that you can’t afford your repayments. Plenty of borrowers have savings, extra repayments they can redraw, assistance from family, or are able to rectify the situation quickly.
However, if you’re unable to meet your repayments for any reason, home loan deferment may be an option to consider. Later in the article, we’ll look at some other options struggling borrowers can look to instead of mortgage repayment deferral.
Yes, interest will still accumulate over the deferral period, adding to the total amount you owe on your mortgage. This is known as interest capitalisation and can impact on the way you repay the remainder of your loan in the future. You may have to increase your repayment amount at some point to account for the increased debt, or look to extend your loan repayment term.
Interest can add up over the life of the loan, so it’s smart to calculate how much your home loan amount will increase over your repayment pause.
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If you’re struggling to meet repayments, you may have more options than just deferral. Plus, as mentioned above, home loan deferral comes with a number of disadvantages. Here are some alternative options to deferring your loan repayments:
Not being able to meet your repayments is a situation that no homeowner wants to be in. Unfortunately, the pandemic has made this more common. If you’re dealing with mortgage stress, it’s a good idea to get in touch with your lender. The majority of banks and lenders have dedicated financial hardship support teams that you can reach out to for assistance and guidance on your next steps.
If your home loan isn’t working out for you, or you’d just like to know more about your options, Lendi’s Home Loan Specialists can help. Get in touch today for free expert advice.
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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.
Tags: investing, investment, investment property, additional repayment, extra repayments, interest only repayments, loan repayment, minimum repayment required, mortgage repayment, principal repayment, reduced repayment, repayment holiday, interest only
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