Saving your home: How to ask for a mortgage payment pause (By Nicole Pedersen-McKinnon)
SMH/March 21, 2020
I don’t often write this, but your lender is your friend.
If you are suffering financial hardship and look like losing your job as the whole country grinds to a Coronavirus-induced halt, PLEASE call them.
Banks and financial institutions have long been required to offer hardship provisions to ease the burden if customers find themselves in financial difficulty. After all, it is in their best interests to get the money owed somehow – even if more slowly.
Institutions began taking this obligation far more seriously after the Hayne royal commission slammed them for their unconscionable actions last year. And amid this global pandemic -which is now not just medical but financial – they will be even more lenient.
Lenders have variously committed to waiving fees and charges, all the way through to debt consolidation and repayment holidays.
Some have even raised the possibility of interest-free periods.
Australian Bankers’ Association chief executive Anna Bligh said: “Banks stand ready to support customers and if anyone is in need of assistance, they shouldn’t wait but come forward as soon as possible.”
Here are some of the things you may be able to do to held reduce your mortgage burden.
All – bar one that I will point out – will ultimately cost you more in interest. But, ultimately, that is not the issue right now.
It’s about not losing your home.
Consolidate your debt
This means rolling any personal loans and perhaps credit-card debt – although minimum monthly payments on these are set so low, you would probably would save more in the short term by just making those payments – into your lower-interest rate mortgage.
Say you consolidated a fairly typical $20,000 five-year car loan into your mortgage. This would slash about $300 off your total monthly repayments.
The downside is while you were on track to pay $4900 in interest (at 9 per cent), you would end up paying triple at $15,076 (at a 5 per cent rate, which might be average over the loan’s life).
A longer-term loan, even a smaller, lower-rate one, will cost you more.
The key to getting a consolidation to work for you over the long term is to resume making the “car repayments” component of your mortgage at their original level as soon as you can, to ditch this portion of the debt cheaper and quicker.
You should even be able to request that your lender make a “separate split,” with the time allowed for the consolidated portion, so the purpose does not get all mixed up.
Take a repayment holiday
For your mortgage, it should be relatively quick and easy to arrange for a pause in your repayments. Most of the administration would be on the lender’s end.
Such a repayment holiday is fairly routinely offered if a household is cash-strapped after a borrower becomes unemployed.
For example, NAB is offering to pause home loan repayments for up to six months, including a three-month checkpoint.
For a customer with a typical home loan of $400,000, this will mean access to an additional $11,006 over six months, or $1,834 per month.
Just be aware that the interest will accrue while you are not paying off the loan, and you will be paying interest on interest, so it will end up costing you significantly more to become mortgage free.
This is the dream solution: cut your repayments to just the principal amount.
If it is truly interest-free, this also would not set you back a cent extra over the life of the loan… in fact it should save you money.
However, I’m guessing that lenders would want some compelling evidence that if you don’t get this deal, you would otherwise default on the loan, to extend you this kind of economic olive branch.
Start the loan clock ticking again
Besides debt consolidation, this is the option to which a lender is most likely to agree.
You what is called re-amortise your loan or, in essence, restart a whole new 25-year or 30-year term, cutting your repayments by the more, the longer you have held your current loan.
You can calculate your potential lower repayment (and also check how much extra this will see you pay overall) on my free app – My Mortgage Freedom Date – available online from the Apple store.
Hopefully, by the time you read this, there will be some solid, more widespread income support on offer from the federal government, so your biggest asset – your home – will not come under threat.
However, if you feel you are in serious trouble – or can see it quickly looming – call your lender today. For the big-four banks,
contact numbers are: ANZ 13 13 14, CBA 13 30 95, NAB 13 22 65 and Westpac 1800 067 497.
You can also call the National Debt Helpline on 1800 700 700 for free advice from a financial counsellor.
(Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me. Follow her on Facebook, Twitter, or Instagram)