Repayment stress to build as JobKeeper and loan deferral deadlines draw near

It’s been almost a year since banks and lenders first started rolling out COVID-19 relief to impacted home loan customers in March 2020, but the fallout from the pandemic is still hanging over the heads of many ‘mortgage holidayers’.

A recent Mozo survey of 1,366 Australians showed that 24% of borrowers whose mortgage repayments are currently paused due to COVID-19 don’t expect to be able to continue servicing their loans once that holiday period is over.

According to the latest figures from APRA, $32 billion worth of home loans remain deferred at present, which equates to 1.4% of all housing loans. These figures are markedly lower than they were back in May and June 2020 when over $250 billion in mortgages were on pause.

However, based on the latest figures and given the sentiment expressed by nearly a quarter of survey respondents, roughly $7.68 billion worth of loans may be unserviceable in the future, once these mortgage holidays begin to expire for borrowers.

Adding to the concern for some is the looming expiry of the JobKeeper payment scheme on 28 March. Mozo’s survey found that 86% of mortgage holders who are currently on JobKeeper are depending on the scheme to stay afloat financially.

“While the Federal Government and the banks have done a lot to help mortgage customers get this far through the pandemic, it’s unfortunate that all the major support programs are being wound back at the same time,” says Mozo Director, Kirsty Lamont.

“It's clear mortgage holidays and the government's support payments are still critical in helping to keep borrowers financially afloat but with all the major support programs largely ending next month, some people will be staggering into a perfect storm.”

Options on the table

The second date of note for mortgage holidayers also falls at the end of March. Back in July, APRA announced that lenders would be able to extend loan deferrals by “a maximum period of 10 months from the start of a repayment deferral or until 31 March 2021” without it affecting capital adequacy requirements.

So, for borrowers still on a repayment holiday, time is running out before lenders may require them to resume repayments. 

“If you are one of the thousands of people with a mortgage who are still struggling to make ends meet, it's important to start talking with your lender now and not wait until the support payments are switched off,” Lamont says.

“From discussing the possibility for a further loan deferral loan, restructuring your loan to accessing a better interest rate cut or switching to an interest-only loan, there are a number of options open to you.”

Seeking a loan extension may be one option available to borrowers which could reduce their monthly repayments. However, extending your loan from 25 years to 30 years, for example, would add an extra $42,545 in interest on a $400,000 loan.

Alternatively, switching to interest only repayments could be another. On a $400,000 loan with the average variable rate in the Mozo database (3.29%), making the switch from principal and interest to interest only repayments would reduce the monthly repayments owed from $1,750 to $1,097 - a saving of $3,918 over six months.

“Although switching to an interest only loan can significantly reduce your monthly repayments you need to remember that your total amount owing will stay the same, so at best it buys you some time while you get yourself back on your financial feet,” Lamont says.

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For a more comprehensive overview of the support measures in place for COVID-19 affected individuals and businesses, take a look at our coronavirus financial guide.