A quarter of a million people have deferred home loan repayments as a result of Covid-19
As I write this, more than 250,000 Australians have asked their banks to defer their home loan repayments for up to 6 months due to financial stress suffered as a consequence of the Coronavirus (Covid-19).
As hundreds of thousands of people are no longer able to make their mortgage repayments due to loss of work and income, many banks are giving struggling Australians the option to defer their repayments for between 3 to 6 months to help to ease the pain.
While the nitty gritty of the deferral arrangements differ slightly between lenders, the repayment pause can give many families suffering severe financial hardship the much needed support they need at this time.
While a welcome reprieve, some of my clients have expressed worries about the potential downside of taking a repayment pause on their home loans. It is important to understand that banks are not waiving your obligation to make your repayments; they are just postponing or deferring it. Interest will still accrue month to month on your loan while you are not making repayments, which will then be added to your loan balance. What this will mean with regards to the term (or length) or your loan when you recommence repayments must be discussed with your bank.
Another concern raised by several clients was the potential impact upon a client's credit record if you are not making repayments. In good news announced by the Australian Banking Association (ABA) today, providing a customer was up to date with their repayments prior to suffering hardship as a result of Covid-19, deferring repayments will not negatively impact your credit record.
As many Australians find themselves without work or with drastically reduced incomes at this time, the truth is that there are a range of options that banks are extending to customers under duress, including deferring repayments. It is important that you discuss these with your lender or broker.