What happens if you can’t pay your mortgage due to Covid?
Last time around during the lockdowns, the Reserve Bank and lenders were quick to release packages to help borrowers if they were unable to meet their mortgage repayments due to Covid.
This time around, things are a bit different, and no relief packages have yet been announced by the banks. While we are now in Level 2, the threat of Delta getting back into the community is real, so what happens now if Covid has affected you and you can’t make your repayments?
Thankfully the banks are reasonable and there is the option to make a hardship claim through the bank. Covid related hardship is taken very seriously, and most banks will be able to assist. It is important to note that before you go to the bank, you want to reduce or eliminate any extra spending or unnecessary expenses. Your application will be processed much quicker if you can show you have made the effort to remove any unnecessary spending.
There are generally three main types of relief that can be offered, and depending on your circumstances as to which one might suit you.
Extending the term of your mortgage (for example, moving from a 20 year term to a 30 year term). This in turn reduces your weekly or monthly payments a little.
Changing mortgage payments to interest only. This is where you only make repayments on the interest rather than the capital. Depending on your interest rate and the structure of your mortgage, this could save you quite a lot in repayments, however your overall loan will not reduce so it will end up costing more in the long run.
Adding the current interest to the outstanding amount of the loan. This is also known as capitalising the mortgage payments. This would be the last case scenario, as it means no repayments at all, and all the repayments (and interest) are added on to the loan. This ends up costing a lot in the long run, so is only a good option if there is no other choice.
Covid related hardship will always be taken seriously by the banks, but it’s important to note that it isn’t a long term solution. As a homeowner, it’s important to be prepared should lockdowns continue or happen again in the future. At Loan Market we can advise you on hardship applications as well as helping you to prepare your financial position for the future. Get in touch with us today.