Mortgage repayment relief

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April 10, 2020

Which payments can I defer? 

  • Mortgage repayment relief is available to home loans and most business loans.
  • Deferral of payments can be in the form of:
    • Defer both principal & interest repayments
    • Defer principal repayments only
    • Please note that you can still make voluntary payments during the deferral period if you wish to do so.

What does this mean for my loan going forward?

  • To reiterate this is a payment deferral with the intention being to free up cash flow asap and normalised repayments will come into effect at the end of this period (note that we are yet to receive further guidance in regards to extending the moratorium period but for the time being it’s a maximum of 6 months).
  • During the deferral period, your interest will be compounding and capitalised, so your limits will increase by the end of the loan term.

Example

Louisa has a $500,000 home loan on a 30-year loan term with a monthly mortgage repayment of $2,000. She requested a mortgage repayment relief with her lender for six months.  During the six months period, the monthly mortgage repayment $2,000 will be capitalised with compounding interest of $100.00.

When the mortgage relief period ends, her total loan balance will increase from $500,000 to $512,600.  (ie., $2,000 a month mortgage repayment and $100.00 compounded interest over a six month period) and her monthly mortgage repayment will increase from $2,000 to $2,096.29 a month
  • Your loan term will also be extended by the deferral period to help smooth the repayments for any forgone principle; note that a longer loan term will also mean more interest owing on your loan. 
  • We have suggested to clients who are not yet facing financial strain to try and stockpile as much cash savings as possible during the deferral period so that they can be in a position to make a  bulk repayment at the end and thereby reduce their loan commitments.

When will this be implemented?

  • Your request needs to be submitted in writing to your lender now.

Any negative implications to my future finance applications ?

  • Regulated lending (Home Loan) – We have been advised by the big 4 banks that deferring the repayment for regulated lending is not a default on your mortgage and will have no effect on your credit rating.
  • Unregulated Lending (Business Loan ) – Most of the lenders will allow mortgage deferral if the business is impacted by the COVID-19, however, we are aware that most business loan terms are 3 – 5 years, deferring the repayment will increase your monthly repayment by almost 20 %-30% a month, which may force the business to demonstrate an increase in revenue to meet the new serviceability criteria in the future.

We urge all clients who have commercial lending facilities to think twice when applying for the mortgage relief, in particular, lending the facilities that are subject to annual review where the lenders may:

  • Reduce your facility term from 3 years to 2 years;  
  • Terminate your loan facility due to your inability to service the debt; 
  • Increase your interest rate as your risk profile has changed from low to high.

Stay tuned for more detailed information on the COVID-19 stimulus in the coming weeks.

Want to know more? Get in touch with one of the team for a comprehensive overview of what you’re entitled to. 

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