The Australian Banking Association (ABA) has recorded more than 320,000 applications for home loan deferrals in the wake of the coronavirus. This comes after banks in March began offering financial hardship relief to customers affected by COVID-19, including loan deferrals of up to six months.
The ABA has also seen around 170,000 business owners deferring business loans and another 37,000 customers pausing repayments on other loan types. The total number of deferrals is just shy of half a million, amounting to an estimated $6.8 billion in loans deferred due to the pandemic.
ABA chief executive Anna Bligh also pointed to the $45 billion in new loans banks have issued to businesses since COVID-19 arrived on Australian shores. Approximately $8.5 billion of this has been dedicated to small businesses.
“The strength of Australia’s banks has allowed the industry to step up and play a key role in helping, not only our customers, but supporting the recovery of the Australian economy, through one of the most challenging periods in our lifetimes,” Bligh said.
Loan deferrals or ‘holidays’ might be an attractive option for borrowers struggling to make repayments right now, especially on more substantial sums like a home loan. But Mozo property expert Steve Jovcevski says customers should be aware of how this will impact their repayments, and what options lenders are offering.
“For example, if your home loan is over 25 years and during the six-month deferral you don’t pay interest, your repayments will go up after that period to cover the accrued interest. Or you’ll end up adding another six months to the term of your loan,” Jovcevski said.
“If you’re already struggling financially, increasing mortgage repayments isn’t going to be easy in six month’s time. So asking to extend the loan term when you apply for a deferral might be a better option, or perhaps switching temporarily to an interest-only loan to cover yourself down the line.”
What other money moves are Australians making right now?
Withdrawing their super early: Nearly half a million Australians have taken advantage of the Federal Government’s early super access scheme rolled out in March. While the $3.8 billion in claims will provide a much-needed buffer for those facing income loss, dipping into your superannuation early has some drawbacks. Consider how much the amount might grow over time (and therefore how much you’re losing in the long run), the current investment market, and where you’re at in your career right now.
Finding greener ways to save money: From reducing energy consumption to driving less and consciously buying less clothing, Aussies are saving in the green department. Find out if you fit in with the eco-crowd and read Mozo’s most recent sustainable consumption research.
Planning to increase their emergency savings: While they may not have the capacity to save more money right now, many Aussies are dedicated to growing a savings pool that’ll get them through future crises. Around one-third have intentions to commit more money to their emergency fund post-pandemic.
RELATED ARTICLE: How to build an emergency savings fund.
If you’re struggling to make ends meet, follow these five steps to creating a crisis budget. And if you are looking to take advantage of low rates to get a better deal on your mortgage, compare refinancing options.