As the Coronavirus continues to impact the economy, some banks are allowing borrowers to defer their mortgage re-payments for up to six months.
This news will come as a welcome relief for home owners who are struggling because of the economic downturn, and particularly for those who have experienced a significant reduction in their income due to unemployment or reduced hours. However before you jump into deferring your home loan repayments, it is important to weigh up the pros and cons.
It is important to realise that even though your mortgage repayments are paused, the interest and fee’s on your loan will still be accruing and will be added to your total loan amount. This means that at the end of the paused payment period your payments will increase to cover the interest accrued over that time. This is referred to as “interest capitalisation”, and could mean you end up paying more for your home over the life of the loan.
However, because interest rates are at an all-time low right now, the total amount of interest accrued over the paused payment period may be minimal over the term of the loan.
Also, some banks will not allow you to access your re-draw facility during the paused the payment period, which is another factor you may need to consider.
The key is to do your homework and be fully aware and understand how deferring payments now may affect you financially down the track. The terms and conditions surrounding the deferred payment program for your particular bank or lending provider can be found on their website or call their customer service line.
Now is also an excellent time to talk to your mortgage broker about re-structuring or re-financing your home loan to take taking advantage of the current low interest rates. Your mortgage broker will also be able to provide expert advice around the option to defer your home loan.
Contact us at Hunter Lending Solutions for a confidential chat.