If the current pandemic is leaving you or your family in a tight financial position, you may be worried about keeping up with mortgage repayments. In this article, our expert answers some of the most common questions we get asked and shares tips on how to manage your finances during this time.
Q. I’m having difficulty covering my mortgage repayments, what can I do about it?
The first thing to do is check whether you’re ahead on your repayments. If you’ve been paying more than the minimum for some time, you could be in a position to skip a few payments whilst money is tight. If this isn’t the case, and you have no savings to fall back on, there are a few options:
- Defer your home loan repayments – if you’re facing financial hardship, you could defer your mortgage repayments for a period of three months without falling into arrears. Once the period is up, we’ll review your situation and extend for another three months if it’s needed. After that, your repayments will revert back to normal.
- Convert to an Interest-Only mortgage – if you have a Principal and Interest home loan, you can convert to Interest Only for a period of up to 12 months without any pre-assessment. After that period, your loan will revert back to Principal and Interest. If you are in a position to cover interest payments, this option means you can reduce your monthly commitment whilst your finances get back on track.
- Re-negotiate your loan – another option is to look at your loan terms and see what can be done to reduce your monthly repayments. For example, if your current loan term is 20 years, it could be extended to 30 years to spread out your repayments and reduce your monthly commitment.Bear in mind that by extending your loan term, you’re going to be paying more interest in the long run.
Q. If I defer my mortgage repayments, how will this impact me financially?
One of the downsides from taking a ‘holiday’ from your mortgage repayments is that you’ll still be charged interest, and that interest will be added to your loan balance. Another thing to bear in mind, is that not paying your mortgage for three or six months means that you’re extending the term of your loan, and therefore it may take you longer than planned to pay off your loan.
Q. What should I consider before switching from Principal and Interest to Interest Only?
Switching to Interest Only gives you an opportunity to ‘stand still’. By paying the interest on your loan, your mortgage balance will remain exactly the same. The downside is that the principal part of your loan will take you longer to pay off, meaning you’ll be paying interest for a longer term too. Before switching to Interest Only, you need to be confident you can meet the monthly interest payments, otherwise, you will fall into arrears.
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This information has been provided without taking into account any of your objectives, financial situation or needs. You should consider whether it is suitable for your circumstances before acquiring this product.
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