Home loan hardships continue during pandemic - What are your options?
With the major banks announcing support packages for those affected by the latest lockdown, analysis here at Mozo has revealed that some of these hardship options may add thousands of dollars in debt long-term.
Our research found an owner occupier paying principal and interest on a $400,000 home loan will add $39 to their monthly repayment and $3,250 to their total loan amount if they take a 3 month mortgage holiday.
We also found extending your home loan from 25 to 30 years might save you $262 in repayments each month, but could add $41,761 to your total loan costs. Reducing your repayments to the minimum monthly amounts could cost you $11,730 on an average $400,000 over 30 years when compared to an extra $50 repayment each month.
“While our big banks should be congratulated for acting quickly to help assist mortgage customers in financial difficulty, it’s important to do the numbers before you lock in a loan deferral,” said Mozo spokesperson Tom Godfrey.
Home Loan Trouble? Defer or Switch
For more than a year now banks and lenders have been thinking about ways to protect home loan customers who may have been impacted by COVID-19. Some relief has been given in the form of loan deferrals but the ongoing pandemic is still hanging over the heads of many homeowners.
A Mozo survey back in March noted that 24% of borrowers whose mortgage repayments were paused due to COVID-19 didn’t expect to be able to service their loan once the ‘mortgage holiday’ period was over. There are surely many in the same boat now.
At the loan deferral peak last year, the Australian Banking Association reported $245.4 billion in loans were paused due to Covid-19 hardship for 493,440 home loan customers.
“While some home loan customers may be forced to take a loan deferral, reduce their monthly repayments or extend the length of their loan, something as simple as comparing loans and switching to a better deal could save you thousands a year without having to increase your debt,” Godfrey said.
There’s another way to think about a pricey home loan and that’s to switch loan products altogether. For example, switching from the average big bank variable rate (3.53%) to one of the best rates (1.99%) in Mozo’s database will save you $3,916 a year based on an average $400,000 loan paying principal and interest over 30 years. The total potential saving over the life of the loan could be up to $117,506.
Want to rethink your current home loan or consider making a switch? Why not check out some of the top loan interest rates on offer on our home loans comparison page.