Australian banks have agreed to allow people who are suffering from financial hardship to continue to defer their mortgage repayments for an additional four months from September. But it’s important to think through if this is really the right option for you.
At the start of the pandemic, the Australian Banking Association (ABA) announced banks were going to allow customers who had lost their job or were suffering financially as a result of COVID-19 to defer their loan repayments for up to six months.
Since then, the ABA’sindicate banks have agreed to allows customers to defer their payments on 779,459 loans including 485,063 mortgages, totaling $236 billion in loans.
Customers who are still in financial hardshipfor an additional four months. But those whose financial circumstances have improved or that have returned to normal should begin repaying their loans again.
The ABA has said banks will be contacting customers who have deferred their payments to see if they can resume their obligations or if they need to continue with deferring their repayments.
If you do want to continue deferring your repayments, it is important to consider the consequences of doing this.
Benefits of deferring:
- You will still continue to own your home if you are not earning money or suffering financial hardship.
Downsides to deferring:
- Continuing to defer your repayments does not stop them.
- Interest still accrues on your loan whether you make your repayments or not.
- You will have more to pay off over the life of the loan if you continue to defer.
There are alternatives to totally pressing pause on your repayments:
- You may be able to move to an interest-only loan to reduce the amount you have to repay each month. You may be charged a higher interest rate if you switch from a principal and interest to an interest-only loan.
- Reducing the amount you pay off your loan each month. This may make your repayments more affordable.
- Exploring other loan options. Search for a wide range of loan options easily at ClearScore. Compare different lenders and the rates they offer in your dashboard now.
The right choice for you will depend on your circumstances. It’s important to talk to your bank about the best way forward as early as possible so you have time to consider the best way forward and plan for any changes. You may find you have options to reduce some of your other expenses and put this money towards your mortgage. For instance, shopping around for the most affordable mobile phone plan you can find and researching the lowest price energy plan might save you money you could redirect towards your mortgage.
The ABA has confirmed customers’ credit reportsif they have already deferred their repayments or if they continue to defer their repayments.
Check your credit report onnow to make sure you’re up to date with your repayments.