We know that in these uncertain times, being able to defer your home loan repayment could be a much-needed financial lifeline.
But there are some important things to size up before getting started, so you can make the right call for a better financial future.
Should you defer your repayments?
Keep in mind that there’s often a balance between short-term advantages and longer-term impacts. Whilst some of these options could be helpful in allowing you to reduce your repayments now, it may take longer to pay off your debt and you may end up paying more in interest in the long run.
What does it mean for your mortgage?
Pressing pause on your mortgage repayments may help you wriggle out of a financial tight spot, but it’s no mortgage ‘holiday’. It’s important to keep in mind that your repayments aren’t simply ‘frozen’ for the deferral period or that your bank will pay for them instead. You’ll still have to make up those 3 months of repayment in future (with the ability to extend to 6 months if needed), and the total mortgage amount you owe may even increase.
How long can I defer repayments?
At first, we’ll pause payments for 3 months. Every month after that, we’ll help you assess whether extensions are needed, with the option to extend up to a maximum of another 3 months. When the time is right to begin repayments again, we’ll work with you to agree on a repayment plan that’s tailored to your needs.
How does this change my repayments once the deferral period ends?
Let’s take a look at Jane Smith, a HR manager who has deferred her repayments for 6 months after losing her job as a result of the pandemic.
When the 6-month period is up, she’ll either have to choose between increasing her repayment amount or making more frequent repayments after. Overall, this could end up costing her more down the track – plus, she’ll still have to keep up with these higher repayments in order to pay off her home loan within the contractual loan term stipulated in the loan contract.
This is all down to something called interest capitalization. Imagine that Jane’s pre-COVID19 mortgage balance on settlement day was $300,000 with a 3.50% p.a. interest rate and $1357.13 contractual monthly repayment that she was on track to pay back over a 30-year period. However, Jane opted in a 6 month repayment deferral 1 year after initial drawdown. Assuming the repayment period started as from the 13th Month with a remaining loan term of 29 years (348 months) and outstanding loan balance of $294,242.62. During her 6-month deferral period, interest still accrued on her outstanding loan balance, which means that the interest she didn’t pay during the 6-months was added to her outstanding loan balance.
The result? Jane would need to repay an additional 5186.94 on top of her $294,242.62, taking her total balance to $299,429.55. Although her contractual loan terms remain the same, her monthly repayments will increase to $1394.79 for her to fully pay off the home loan within the remaining term of 342 months.
However, if Jane’s interest rate was lower she would have owed less after the deferral period ended – making the repayment amount less significant.
Having a thorough understanding of your financial situation, calculating the impact your own interest rates will have on your deferral and weighing up the short and long-term benefits and disadvantages will help you decide whether these rates are worthwhile.
Will I get penalised for deferring my payments?
Rest easy – your credit rating won’t be impacted by a repayment pause. This was announced on 6 April by the Australian Banking Association.
If you’re on a variable rate, talk to us today about how our new reduced fixed rates (released on 3 April 2020) could help.
What is VMA doing to help Home Loans customers?
Given everything that’s going on in the world at the moment, we’ve prepared a slew of options to help make it as easy as possible in the circumstances for you to continue to make your upcoming home loan repayments. Apart from having the option to pause repayments for 3 months (and extend this up to a further 3 months if needed), you can switch to interest only repayments for up to 12-months and redraw additional repayments to offset your account balance. Plus, if you’re ahead of repayments, you can pause or reduce your monthly repayments for an agreed period. If you do decide deferring repayments on your VMA home loan is right for you, here’s what you need to know to apply:
Who is eligible?
Anyone with a VMA fixed or variable rate home loan beginning on or before Date Month Year, who is currently undergoing financial difficultly as a result of COVID-19, can apply for help. Financial difficulty can mean different things to different people. In this case, it means you can’t pay back what you owe because of unforeseen circumstances outside your control.
How do I apply?
It’s simple to apply, but we recommend speaking to an independent financial advisor first. Once you’ve decided deferring your repayments is the best way forward, fill out this form and send it to us via email. Make sure all supporting documentation, including recent pay slips, medical certificates, child support documents etc. is included to help fast-track your assessment.
How long does assessment take?
Every case is different – and each one will take a different amount of time to process. But we’ve introduced Fast Track Hardship Assistance for customers who have been affected by COVID-19, recent weather events or bushfires. Please visit https://virginmoney.com.au/help/support-and-assistance for more information on how we can assist you.
Where can I get advice?
There are plenty of resources available. You can get free independent counselling and advice from a Financial Counsellor. For a comprehensive listing of Financial Counsellors please visit the FCA website. To talk to a Financial Counsellor by phone (or for referral) call 1800 007 007 from anywhere in Australia.
For help and support with your Virgin Money Home Loan, please call us on 13 81 51, or email firstname.lastname@example.org. Our Customer Care Team is available from 8.30am to 5.30pm AEST, Monday to Friday, except public holidays.
VMA has not considered your objectives, financial situation or needs in preparing this advice. Before acting on any advice please consider the appropriateness of the advice for you, having regard to your objectives, financial situation and needs.
Virgin Money (Australia) Pty Limited ABN 75 103 478 897 (“Virgin Money”) promotes the home loans as the authorised credit representative of the credit provider, Bank of Queensland Limited ABN 32 009 656 740 Australian Credit Licence 244 616 (“the lender”).