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What is a payment deferral?

This is also known as a mortgage payment holiday but don’t let the name fool you, this is no holiday. If you’ve been stood down, lost your job and cannot afford to pay mortgage repayments, you could have the ability to request a payment deferral. This is when a lender defers your repayments for a period of time.

Every lender has their own rules and requirements on these payment deferrals. It’s important to know that at some point you will be required to pay the interest that accrued while the loan was deferred. For example, some lenders will add the amount you owe to the end of your loan and some will charge immediately after the payment deferral is off hold.

Also, after the deferral, your balance and your repayments could be higher to make up for the interest accrued deferred repayments. Make sure you cover these points before you agree to the offered payment deferral.

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What happens to the principal if the repayments are frozen?

When a payment deferral on an existing mortgage is activated, it means that a lender will defer your required mortgage repayments for a specific period of time. Although your repayments are deferred, the interest on your loan is still calculated and added to the balance. In effect, this could mean that you’re paying interest on interest.

So, when you recommence repayments your lender could recalculate your repayments so you repay the loan in the original term. This ultimately means your repayments will rise. However, there are options available to refinance after the payment deferral period, which could help to reduce repayments and increase the term of your loan, giving you a bit more flexibility.

How do I get hardship assistance?

First things first, while it’s important to understand what your options are in these difficult times, I urge you not to panic and spend hours on hold to your lender. Let’s look into your options first, we can help you navigate and understand what your options are during this time of financial hardship that many Australians are facing. We are totally across all things COVID-19 and what options may be available to our clients, so feel free to reach out to us to discuss further.

When is a good time to refinance and is it complicated?*

There are many factors that you need to consider when looking to refinance.

A few reasons you might want to refinance are:

  • Take advantage of the recent RBA rate cut

Now might be the right time to see if we can find a more competitive rate that is suited to your current needs. A lower interest rate could result in lower interest costs and might just save you a heap over the life of your loan.

  • After some new loan features?

There could be a bundle of features that could give you more power over your finances when you refinance your mortgage. It might be the new rates that could save you money or the option to repay your loan faster without having to pay penalty charges. Some loans won’t charge you a monthly account fee or a fee for withdrawing money when you need it. Speak with us about what your options may be.

  • Keen to tap into some of your home equity?*

If you need some extra funds but don’t want to dip into your emergency funds or savings account you could tap into your home equity instead. Now, the line of credit your equity can get you depends on two things – The amount you’ve repaid on your mortgage and the value of your home.

Some benefits of tapping into your home equity could be that you might be able to save on costs compared to other types of loans, start your home renovation or use the extra funds to help with your current circumstances.

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Is now a good time to fix my rate?*

There is no easy answer to this question, as it depends on your individual situation and your financial goals. Let’s take a look at the pros and cons of fixing your rate:

Pros: Fixed rates prevent the risk of your repayments increasing due to a rise in interest rates and your repayments will stay the same for a set period.
Cons: Fixed rates can be higher than variable rates, (but if you know where to look for the right deal you can get a lower fixed rate than variable right now), there could be associated fees and costs for breaking your fixed rate if you chose to refinance.

Refinance Vs Payment Deferral?*

A common question we get asked is whether to refinance or if a payment deferral is the way to go. There are a few different options which all depend on your current situation and financial needs. We can help answer any questions you may have around this to see what the right option is for you.

What are the options as a landlord?*

Your tenants may be going through some financial hardship at the moment and may not be able to afford paying their rent, we may be able to help:

  • Negotiate payment deferral options for your mortgage
  • Discuss hardship options
  • Refinance or reprice to get a more competitive rate
  • Outline the costs of switching and not switching

What options are there for small business owners to help with ongoing business expenses?**

The Job Keeper Payment has been set up by the Australian Government to provide a temporary wage subsidy available to eligible employers. This subsidy relates to current employees who were employed by the employer on 1 March 2020.

It will allow businesses impacted by COVID-19 to access a fortnightly wage subsidy of $1,500 for a maximum of 6 months. Generally, to qualify businesses will need to demonstrate a drop in revenue by at least 30 percent.

There has been a massive release of funds to assist small business owners right now here in Australia.

*Disclaimer: Any refinancing/access to home equity is subject to lender-imposed terms and conditions including but not limited to loan serviceability, valuations and confirmed capacity to service both any existing and revised lending arrangements. **This document has been created by Fox Finance Group Pty Ltd (ABN 46 120 502 392 – Australian Credit Licence No. 382952). It provides an overview or summary only and it should not be considered a comprehensive  statement on any matter. You should before acting in reliance upon this information seek independent professional lending or taxation advice as appropriate specific to your objectives, financial circumstances or needs. Information included has been sourced from third parties and has not been independently verified. Accordingly, Fox Finance Group Pty Ltd is not in any way responsible for nor provides any warranty express or implied as to its accuracy or relevance.

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