Have you deferred your mortgage payments, or thinking about doing so?
Read on, so you know you can make an informed decision…
When Covid-19 first hit Australia and Prime Minister Morrison announced the temporary lock-downs of various industries, unfortunately many people lost their jobs or were given reduced hours. To help ease the burden of mortgage repayments, the banks stepped in to try and help, by offering deferred payments to their mortgage holders. Lots of people jumped at the opportunity to put their mortgage on hold, even those lucky enough to be largely unaffected by the lock-down.
On the surface, putting your loan on hold with 3 or 6 months with no mortgage payments may sound like a great idea, as it could mean keeping those extra few thousands in the bank. Whilst it has no doubt been a saviour for some, it has been extra “savings” that others did not need.
What seems to have slipped past a few people is the word “deferred”. It does not mean you simply make up the missed payments at the end of the period, or when you can. The interest that would have been payable during the pause is now being capitalized onto your loan. So, with capitalizing interest AND no principle payments during this time, instead of your loan balance decreasing or just remaining the same, it has actually been going up!
So, if you have deferred your mortgage repayments, what does it mean to you?
At the end of your deferral period, your mortgage repayments will be higher than before you paused your loan, as your loan term has remained the same. You could extend your loan term, and whilst it would keep your repayment to pre-Covid, it means more total interest paid over the term of your loan, as you will have paid interest on interest.
So, what are your other options?
Refinance – instead of pausing your loan, you could consider refinancing. With record low interest rates available now, it could result in your saving an extra couple of hundred dollars a month (check out below what we have already saved our clients!). On top of this, some lenders are offering refinance rebates ranging from $1,500-$3,000, which could certainly go a long way during these tough times.
Switch to interest only – if you have not been too badly impacted by the pandemic and lockdowns, you could consider switching to interest only for a short-term. Whilst the principle will not go down, at least the interest will be paid, and you will avoid it being capitalized.
Consolidate other debts – car loans or credit card debt often have very high interest loans and could potentially be refinanced into your mortgage. Combining this with refinancing to a better interest rate, may well be an easy way to increase your cash flow.
If you need help navigating your specific circumstances, please give us a call as a matter of urgency.
We can investigate the various scenarios and assist you to obtain what will work best for you.
Just in the last few months, we have achieved the following for our clients:
We would love to help YOU save some money and give you back some cashflow each month, so look forward to your calling us now on 8004 2222 or 0411 216 849 or book a time to chat.