What does it mean to defer my loan during COVID-19?

Over the past few weeks, many clients have asked us about deferring their home loan repayments due to Covid-19. We understand that this is a tough time for many, and we hope this helps with your decision before requesting deferring your loan.

Who is a loan deferral?

Loan deferral is temporary financial relief offered by your bank or lender where for an agreed period of time you won't be obliged to make any loan repayments.

Who can apply for loan deferral

The banks are offering loan deferral to customers impacted financially by Covid-19. The impact from Covid-19 can be caused by:

• falling ill;
• losing your job; or
• a reduction in income,

resulting in difficulties in making loan repayments.?

What can I do before deferring my loan?

There are practical ways to help ease the financial pressure before deciding to defer loan repayments, including:

• Review of your budgets and expenses, e.g. there might be expenses that can be reduced
• Check your redraw - if you are ahead of your repayments, you may be able to access these funds first
• Negotiate your interest rate - ask your broker or bank manager for the most competitive rate you should be paying
• Fix your loan for certainty over the repayment amount - please see our previous post about the banks’ fixed rate offers?
• Check your direct debit if you haven’t adjusted it to the minimum repayment

What other alternatives are there?

Besides a loan deferral, other types of financial assistance your bank can provide include:

• Switching your repayments to interest only temporarily
• Reducing repayment amounts / extending your loan term
• Restructuring your loans and/or debts
• Breaking your fixed term which might be on a high rate, where the break cost is acceptable
• Switch to a different loan product.

How long can I defer my loan for?

The major banks are offering loan deferral for home loan customers of up to six months. Certain banks will review your case at the three month point.

What is my obligation during payment pause?

During the time of payment pause, the payments you are obliged to make are $nil.

Does it cost me anything?

No. There are no fees charged to make a deferral request. However during the payment pause interest will still be calculated and added to your loan at the end of the deferral period.

How is interest calculated?

Interest will be capitalised (added) to the loan balance. Therefore, after the payment pause, your repayments will be higher to ensure the loan is repaid within the loan term.

CBA and ANZ will extend the loan term so you can maintain your existing repayments.

Is a loan deferral recorded on my credit file?

We have been advised that no adverse data will be recorded for a loan deferral.

On the other hand, if you have missed payments prior to applying for loan deferral, this will likely be reflected on your credit file.

Does it impact my ability to refinance?

There is no precedent to date to support this either way. Our best guess is unlikely if it is a case of a loan deferral due to Covid-19 and there are no missed payments.

We would suggest keeping accurate records of your job dates, incomes and any correspondence with your bank, so that when you refinance, any gaps in your financial history can be fully justified.

What if I'm on a fixed rate?

You should check with your bank about the applicable revert rates if the contractual end date of your fixed loan occurs during the deferral period.

Can I ask for another 6 months?

At this stage, this is unlikely, given there are no precedents.

Only NAB has said it will review your case if you request an extension beyond a 6 months deferral.

How to apply for loan deferral?

Applications with most major banks can be made online:

• ANZ - complete this form
• CBA - follow this link to log into your Netbank
• Macquarie - complete this form - Macquarie?
• NAB - complete this form
• St George Bank - complete this form
• Westpac - complete this form?
• ING - call their Lending Specialists on 133 464, 8am-8pm, 7 days
• TMB - email credit assistance at [email protected]

Do I need to defer all loans? Or can I selectively defer my loans?

If you have more than one loan, when making the application, you will be prompted to select which account(s) you wish to defer repayments for.

Please note for NAB, you’ll need to call to make the selection. Follow the online form above which will prompt you to call.

Further Assistance

If you have a question that is not answered above, or would like to talk through your situation, please feel free to reach out to me on 02 8004 1888 or?[email protected].