What you need to know if you deferred your loan repayments due to COVID-19
With the initial six-month deferral period coming to an end, lenders have started contacting customers who deferred their home and business loans due to COVID-19.
Over the next month, Aussie lenders will contact more than 450,000 borrowers to assess whether they can start repaying their loans.
This includes at least 260,000 mortgage deferrals and 105,000 business loan deferrals. More than 900,000 loans have been deferred in total since the beginning of the pandemic.
So, what are your options if you deferred your loan and you’re yet to resume paying it?
If you can afford to resume loan repayments
Borrowers who are in a position to resume their repayments will be asked to do so. This means if you’re employed, or your business is in a better position than when you deferred, you’ll need to start making repayments. But don’t worry, that’s actually a good thing.
This is because lenders can capitalise unpaid interest from your deferred payments into the balance of your loan. So, the longer you defer your payments, the more unpaid interest will accrue. You could end up with a higher loan balance – and higher repayments – than when you started the deferral.
If you can’t afford your full loan repayments
The Australian Banking Association says banks are keen to work with borrowers to find a way for them to resume making repayments. That might mean restructuring the loan, converting to interest-only payments for a period of time, or extending the loan term.
All of these options are designed to reduce the size of your repayments in the short term, which might be just what you need to get through the pandemic.
However, be aware that there may be longer term implications. Always do your due diligence and ask your lender what you’ll end up paying over the life of the loan. And if you’re in any doubt, seek professional financial advice before making a decision.
If you can’t afford to start repaying your loan yet
Some mortgage holders who are still struggling financially due to the impact of COVID-19 may be eligible for a further four-month extension to repay their home loans.
The extension won’t be granted automatically, but it will be determined by lenders on a case-by-case basis. If you think you’ll be in a better position to start repaying your home or business loan in a few months’ time, speak to your lender about it.
But once again, don’t forget to find out how much more you’ll pay over the life of the loan, and what your repayments will be.
If you’re in severe financial difficulty
If you don’t think you’ll be able to start repaying your home loan in future, and you’d like to understand your options, speak to a financial counsellor as soon as possible.
A financial counsellor can work with you to understand your true financial position and, if possible, put a budget in place to meet your mortgage repayments. They can also help consolidate and restructure other debts, and negotiate the best possible terms with creditors.
If you are thinking about selling your home, speak to your bank and find out whether any fees apply for exiting your mortgage early. Whatever you do, don’t make any major decisions without speaking to a financial counsellor or your financial adviser first.
Get your financial foundations right
Whatever your current circumstances, there’s never been a more important time to get your finances on track. That means sticking to a budget, reining in your cash flow and seeking professional financial advice.
While many people think financial advice is only for the wealthy, in reality you can benefit significantly at any age or stage of life. In such an uncertain environment, getting professional financial advice can give you peace of mind and put you on track to emerge financially stronger than ever.
For further assistance, please contact us.
Source: FPA Money & Life