Nearly 3 million Australians are asking for a rent reduction or mortgage repayment pause as the coronavirus pandemic wreaks havoc on Aussies’ ability to pay bills. Of those 2.9 million Australians, 1.2 million are homeowners who have already contacted or plan to contact their lender for a deferral in their mortgage repayments. Many major lenders have offered to put borrowers’ home loan repayments on hold for six months. However, we warn Australians to be cautious in taking up the offer. Whether you own your own home or are renting, it’s time to re-evaluate your expenses and see where you can cut down.
If you have a home loan, a pause in your mortgage payments should be your last resort. That’s because even though homeowners can pause their repayments, the interest will still accrue: One home-owner deferring repayments on his two mortgages would leave him $39,998 out of pocket.
In fact, homeowners with a $500,000 loan who had spent 10 years paying it off with an average variable rate of 3.90%would be slugged an extra $11,127 over the remaining 20 years of the loan if they took up the six month pause. And homeowners who take up the pause with a $400,000 loan would still need to pay an extra $8,902 over the remaining 20 years.
Borrowers need to be aware that it’s a repayment holiday, not an interest holiday. Banks are going to make all this extra money from us!
There are better ways. If you can get a mortgage discount, that’s going to save you potentially hundreds of dollars a month right there if you are struggling.
Borrowers who decide to extend their loan by six months, rather than increasing their repayment sizes at the end of the six month period, will also be worse off.
You will ultimately pay interest on interest. Borrowers with $400,000 loans are looking at as much as $17,000 added to their loan if they choose to extend the repayment period.
What do I do?
Borrowers should through us seek to negotiate a better rate, and even consider fixing a portion of their loan.
We would recommend looking into getting a better rate on your home loan first if you are struggling to make your repayments. While a mortgage deferral or holiday sounds appealing in the short term, you need to seriously consider whether you’ll be able to afford this ‘holiday’ in the long run. Refinancing can save borrowers enough to avoid having to pause repayments.
Covid-19 has hit the economy hard but the silver lining is that home loan interest rates have never been lower.
The critical step is to look for an interest rate that begins with a ‘2’. There are hundreds of dollars to be saved each month by simply by switching. Call us today on 1300 861 143 for an obligation free assessment of your situation.
All in all, the best possible course of action is to seek to consult with us to get expert advice on the best solution to your situation. Simply call us on 1300 861 143. We are available 7 days a week from 9am to 9pm.
Your Choice Mortgage Brokers Pty Ltd ATF Halo Innovation Trust trading as Heart Mortgage Services - Australian Credit Licence 38643
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