Are you worried about your mortgage repayments? You’re not alone. We know that many in our community are being affected financially by the current crisis. Jobs lost or ‘put on hold’, hours reduced and uncertainty in so many sectors of our economy are worrying many. With no end in sight we needed an expert to answer some questions on handling your COVID-19 mortgage repayments. We asked Josh from MoneyQuest to answer our top ten questions on managing our home loans during this difficult time. Josh has the skills and knowledge to help you with home loan, commercial loan, investment property loan, loan protection insurance and general insurance.
1.What are the first steps home loan customers should consider if they encounter financial hardship?
- consider accessing additional funds you may have available in your home loan redraw facility;
- consider utilising any funds you may have in an offset account;
- consider reducing your repayments to the minimum monthly repayment amount;
- consider if interest only repayments might be a better option;
- check if you have insurance that may cover you in the event of illness or involuntary unemployment.
2. Are all lenders offering their customers the opportunity to pause repayments for up to 6 months?
No – while most banks are offering a repayment pause of up to 6 months, non-bank lenders are assessing all hardship enquiries on a case by case basis.
To find out the COVID-19 support package your home loan lender is offering, we suggest you check their website or contact MoneyQuest for more information.
3. Is a repayment pause available on both home loans and investment property loans?
Yes – owner occupiers and investors financially affected by COVID-19 who have either principal and interest or interest only repayments are eligible.
4. Does taking up a COVID-19 repayment pause impact your ability to access the funds you have accrued in your redraw facility?
Yes – most lenders will zero out your redraw when your repayments are paused, so if you do have funds accrued you should consider transferring them to your daily transaction account before applying for a repayment pause.
5. What happens to your repayments when they are paused?
You will not be required to make any repayments during the pause period.
Interest will continue to be charged and given you will not be making repayments; the unpaid interest will be added to your home loan (capitalised) and you may end up paying more interest over the life of your home loan.
6. What happens at the end of the assistance pause period?
At the end of the COVID-19 Assistance period your home loan repayments will start again. Some lenders are offering two options to catch up on the repayments that were paused:
- extending your loan term by a period equal to the duration of the assistance provided and adjusting your repayments accordingly, or
- retaining your original loan term and adjusting your repayments to ensure you pay your loan off over the original loan term.
Note: the majority of lenders are only offering option ii, please check with your lender or again contact MoneyQuest for more information.
7. What is interest capitalisation?
When you make regular repayments on your home loan with a principal and interest repayment type, you are paying both the interest charged for that period as well as some of the principal amount (the original loan amount).
If you choose to pause your repayments, interest will continue to be charged to the total home loan amount outstanding. Given you will not be making repayments, this interest will continue to be added and as result your home loan amount will increase during the period your repayments are paused.
8. Can I make additional repayments during the repayments pause period?
Yes – you can make uncapped additional repayments on any variable interest rate home loan.
However, fixed interest rate home loans generally have an annual limit for additional repayments during the fixed period. If you make repayments greater than this annual limit, you may be charged an early repayment fee and should consult your home loan lender or broker (me) before making such a payment.
9. What happens if interest rates on my variable rate home loan change during the period my repayments are paused?
Interest on variable rate home loans will continue to be charged at the applicable daily interest rate and may change from time to time.
10. Will borrowers taking up the repayments pause have a black mark recorded against their credit report?
No – during the period you put your repayments on hold as part of a COVID-19 assistance offering, your home loan will not be reported to credit reporting agencies as being behind on repayments – so long as your repayments were up to date at the time your repayments were paused
With so much great information we hope this starts you on your journey to finding mortgage repayment help during Covid-19. If you still have questions contact Josh at MoneyQuest. He’ll be happy to navigate you through this challenging time. We hope that this advice gives you some comfort and help.