My mortgage is suddenly too much to pay, what are my options?

If you’ve suddenly found yourself struggling to make your mortgage repayments due to the current crisis, there are a few things you can do to ease some of that stress. 

Along with the usual avenues that are available to customers experiencing financial hardship, banks have announced a raft of support measures to help hard-hit Australians. We take a look at these and other options available to mortgage holders below. 

Defer your mortgage repayments

Following the Reserve Bank’s emergency rate cut in March, banks have stepped up to help mortgage holders out of the red. One way they're doing this is by allowing customers who have lost their jobs or income as a result of the coronavirus pandemic to defer mortgage repayments for up to six months.

But before you rush to take advantage of this, keep in mind that interest will continue to accrue on your loan throughout the deferral period. This means once those six months are over, your outstanding balance will have increased, and your bank will either increase the length of your loan or adjust the size of your repayments to accommodate this.

Access your loan’s redraw facility

Many lenders allow you to make extra repayments on your home loan (which can be unlimited or capped at a certain amount each year). If you’re ahead on your loan, you might be able to retrieve those extra funds using the redraw facility available on your loan. 

Use your offset account

An offset account functions like a savings account or transaction account but with one key difference: it offsets the balance in the account against the balance of your home loan. Not all home loans come with this feature, but if yours does and you’ve been making use of it, it might be worth dipping into those funds to cover your future repayments.

Adjust the size of your repayments

If you’re already paying more than the minimum amount each month, you’ll have the option to decrease the size of your direct debits so that they better suit your current circumstances. Many banks will allow you to do this via your banking app. Alternatively, you can also use online banking or chat to a customer service specialist over the phone.

Ask your lender for a lower rate

Even in normal circumstances, it’s a good idea to regularly review your home loan to make sure you’re not paying more than you need to be. To make sure you’re in the best possible position to haggle, do a little digging and find out what your lender is offering new customers, then take a look at the kinds of rates available elsewhere on the market.

Assuming your job is secure and you haven’t missed any repayments on your loan thus far, this will give you a bit of leverage when it comes to negotiating a lower price. Whether or not your lender will grant your request will depend on a number of factors, but if you show them you’ve done your research (and you’re prepared to walk), things could be tilted in your favour. 

Refinance your home loan

Another way to potentially shed hundreds of dollars off your monthly repayments is to refinance to a cheaper loan. Let’s say you’re paying off a $300,000 loan over 25 years at 3.50% p.a. interest, and your monthly repayments are around $1,501. By refinancing to a loan with an interest rate of 2.34% p.a. (the lowest variable rate in our database at the time of writing), you could see your monthly repayments drop to $1,322, saving you $179 a month.

Of course, you might have to jump through more hoops than usual to prove your creditworthiness in the current environment. Many banks have tightened their lending restrictions, particularly for workers in high-risk industries and casual, contractor and self-employed applicants. 

If you fall into one of these categories, you’ll probably have your work cut out for you. But if your job has been insulated against the worst of the current crisis and your credit score and financial health are in good standing, the road to refinancing should be quite smooth.

Is there any more help available?

In the last few months, the Federal Government has introduced multiple stimulus packages to help keep Australian households and businesses afloat. These include extra payments to eligible income support recipients, early access to superannuation, and subsidies for businesses to help keep employees on the payroll. 

For an overview of the kinds of support available, along with other tips to keep your finances in good health amid the current crisis, visit our coronavirus financial guide.

Home loan comparisons on Mozo - rates updated daily

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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate, loan amount and term entered. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

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