Earlier this year when the pandemic of COVID19 hit the Australian shores, many banks, lenders and building societies offered assistance to help those who needed it. It has been referred to as the Home Loan Holiday. Put simply, the home loan holiday was temporary suspension of loan repayments during a period of time. During this time, the loans continued to accrue interest.
The latest data from APRA in August 2020 showed that Australians have put about 393,000 home loans, worth $160 billion, on hold, which accounts for 9 per cent of all mortgages in the country.
But, like always you can’t stay on vacation forever, so now that the pandemic affect is easing and its been 4 or 6 months what happens? Those borrowers who deferred those loan repayments in most cases will be contacted by the bank. The options moving forward may be quite challenging for those who were greatly affected. But the basic options are;
Return to Full Payments
Resume your initial regular loan repayments. This is the optimum goal for most who deferred their loan repayments this one puts you back on path to paying off your home loan at minimal extra costs. You can do this and extend your loan contract to a longer term or keep the loan term and make higher repayments to cover the increased interest and missed payments.
Switch to Interest Only
Buy switching to Interest Only Payments – you will be required to only repay the interest portion of the loan, these are usually only available for a limited time but these interest only repayments may help to keep the financial pressure off until a time where thing resume back to the normal or you are ready to make a different move. Interest only repayments won’t bring you closer to paying off your home loan – but the interest won’t be capitalised onto your loan so you wont be paying interest on interest.
Continue the Holiday
Not everyone has overcome the pandemic, many Australians have lost their jobs or those who are in Melbourne may still be facing lockdown and restrictions. These people are not yet in the position where they can return to making full mortgage repayments. With that in mind, Australian banks have offered to extend the repayment deferral for another four months or until March 2021. Whilst this is an expensive option this may be the only option for some Australians to keep their property and manage their expenses.
Sell it, and Move on
If you can’t afford your home loan their may come a time when the best option moving forward is to sell. This isn’t the worst option, you won’t be accruing interest and if you can sell at a reasonable price you may have access to the equity which in the meantime can help secure your housing or living.
Spend some time making your decision and be sure to talk to someone who can really explain your options, most of the time this is your current bank if not you can reach out to an Unlocked Broker.