Loan pause could be costly

In response to the coronavirus pandemic, Australian banks will allow you to extend the six-month pause on your mortgage repayments for another four months – provided you genuinely need the time.

However, you should keep in mind that extending any home loan will cost you in the long run.

RateCity research shows a mortgage holder who has a loan balance of $400,000 and is five years into a 30-year loan could end up paying close to an extra $10,000 over the life of the loan if they extend the deferral out to 10 months. The comparison site says this would mean an increase of $102 in your monthly repayments.

Instead of pausing mortgage repayments, RateCity suggests looking at using money in your offset or redraw, if available. You could also request a rate cut or switch to a lower fixed rate. Then there’s the option of switching to interest-only repayments or reduced repayments for a time.

Sally Tindall, research director at RateCity, says the banks were doing the right thing by customers in need, but it is important for people to understand the long-term implications of a repayment pause.

“The reality is that thousands of families will have no choice but to keep their home loan on hold,” says Tindall. “If that’s you, try to come up with a plan to pay the money back after the pause to get your mortgage back on track. Repayment pauses should only be used when other avenues have been exhausted. “Talk to your bank about what other options you might have, including a rate reduction or reduced repayments for a limited time. When it comes to paying off your mortgage, every dollar makes a difference.”