Before diving into the specifics of deferring mortgage repayments, it’s essential to grasp what a payment deferral means – a mortgage payment deferral allows you to postpone overdue or missed payments by moving them to the end of your loan term. This option enables you to maintain your current monthly payment schedule while bringing your loan back to good standing. Here are some scenarios where you might consider a mortgage payment deferral: 

  • Falling behind on mortgage payments or nearing the end of a forbearance plan. 
  • Inability to catch up on outstanding balances through a repayment plan. 
  • Experiencing financial hardship due to the economic impacts of the COVID-19 pandemic. 

Many Australian banks have introduced support measures, including deferring home loan repayments for up to six months. While this relief can be beneficial, it’s important to be aware of the potential drawbacks, particularly regarding your credit score. 

Reviewing Your Financial Situation 

Just as you would when applying for a loan, lenders conduct a thorough review of your financial situation when considering a deferral request. This review typically involves an assessment of your total assets, liabilities, savings, and income records. The aim is to gain a comprehensive understanding of your financial position and credit history. 

If you can demonstrate significant financial hardship, such as loss of employment or a substantial reduction in income, coupled with a lack of savings or alternative means to meet repayments, lenders may offer hardship terms. These terms often include tailored hardship packages designed to facilitate successful deferral arrangements. 

Exploring Interest-Only Repayments 

In addition to evaluating your financial statements, lenders might offer the option to switch to interest-only repayments for a specified period, often with a 90-day review period. The lender capitalises the interest for the deferral period, which is then added to the existing loan balance. When normal repayments resume, they are recalculated based on the new, higher loan balance, which includes both the original loan amount and the accumulated interest from the deferral period. 

Considerations and Implications 

While mortgage repayment deferrals can provide temporary relief, it’s vital to consider the long-term implications. Deferring payments can lead to an increased loan balance, which may result in higher monthly payments once the deferral period ends.  

While the opportunity to defer mortgage payments can offer much-needed respite during financial hardship, it is important to approach this option with a clear understanding of the associated benefits and risks.