Taking a break from mortgage payments might be exactly what you need right now. But how will it affect you in the long run?
There have been many reports in the news about mortgage breaks affecting your credit score.
Earlier this month the Australian Banking Association announced that pressing pause on your home loan repayments due to the coronavirus crisis, will not impact your credit score provided payments were up to date prior.
Before COVID-19 any missed loan repayments would be reported in a customer’s credit report and kept for 24 months.
Should I hit pause?
What you should be asking yourself is what happens after the mortgage break period?
The short answer is that you will still need to pay back the interest from that period eventually. But don’t be alarmed.
Some banks are giving customers the option of adjusting their loan length, for example from 25 years to 30 years. This allows them to keep their repayments close to pre-pause levels.
Another option could be to keep the loan length the same but adjust the post-pause repayments to a higher amount to get you back on track. This is also more easily achieved in our current low-interest rate climate.
So while overall a repayment pause will put you behind in terms of paying off your loan in the long run, it could be worth it if it means surviving this strenuous period.
If you do decide to hit pause, it’s a good idea to check that your bank will report you as not missing payments in their systems. That way you’ll be assured it won’t affect your credit score.
Do I have other options?
Yes. Another option could be to revert your payments to interest only. This means your interest isn’t adding up over the pause period and you’re saving a small amount of cash-flow each week. This would be subject to a full application so if your income is affected currently – it may not be approved.
Or you can contact your mortgage broker to ask if you are currently getting the best interest rate available. Getting a lower interest rate could surprisingly save you about $300 to $500 per month.
But if you do decide to pause your payments, rest assured that after the tough times have blown over you can always look to restructure things when your income is back on track.
We predict that there will be some great deal ahead to assist clients.
If you would like help to assess what the best option is for your situation, please give us a call.
Patrick Cranshaw, a Certified Mortgage Professional for over 21 years, founded North Brisbane Home Loans in 2002. His career began with ANZ Bank in New Zealand, where he progressed over 16 years to a Business Banking role in Virginia. After moving to Brisbane in 2000, Patrick led the QLD market for a home loan agency, helped set up the REMAX Real Estate Finance division, and practiced as a broker.
