What happens if you pause your mortgage repayments?

Amongst the raft of financial assistance options available during the coronavirus crisis is the ability for borrowers to pause their mortgage repayments. However, unlike many of the other support packages on offer, this strategy does come with a downside.

Lenders in Australia have always had financial hardship policies in place as part of their commitment to responsible lending practices.  The coronavirus crisis has brought these polices out into the open, with many mortgage holders probably learning about them for the first time.

So far, all major lenders and many of the smaller ones have announced that customers affected by the coronavirus can pause their mortgage repayments from three to six months.

Like many of the assistance packages available, borrowers need to show that they have lost their job or had their incomes significantly affected by the coronavirus.

While many borrowers can apply for the repayment pauses online, it certainly is not an automatic approval process.

In fact, if they have savings, are ahead on their loans, or can access their superannuation funds, many borrowers may find they are unable to pause their mortgage repayments.

However, for those people suffering severe financial hardship from the coronavirus, pausing your mortgage repayments is a far better option than being forced to sell your home or investment property in uncertain market conditions.

It’s important to understand, though, that interest on your mortgage will continue to accrue during the repayment pause period.

At the end of the pause, this interest will be added, or capitalised, onto your loan, which will increase your future repayments.

While mortgage repayment pauses should be utilised by anyone who cannot meet their regular loan commitments, there are other options that might be worthwhile considering as well, such as applying for interest-only repayments for a period of time.

Some lenders have also announced other financial assistance initiatives, such as waiving fees and charges, adding overdue repayments to the balance of loans, or extending the loan term to reduce the amount of payments.

The announcements over recent days of the JobKeeper wage subsidy as well as rental grants for tenants in Queensland should help many borrowers maintain their financial obligations over the months ahead.

As I mentioned, the ability to pause mortgage repayments should be investigated by anyone who has no other means of keeping up with their repayments.

The alternative of mortgage default, and potentially having your property sold via a mortgagee sale by your lender, is not a situation that anyone needs to experience.

If you are experiencing financial difficulties from the coronavirus, please contact your lender or your mortgage broker directly to discuss your options before your situation becomes critical.

 

 

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