At the beginning of the COVID-19 crisis lenders were inundated with calls to put repayments on hold.
I was outraged to say the least when a lender advised one of my clients they needed to take serious hardship as they had not been given any Government directive over further extensions to hardship under Covid.
I have so many clients in Melbourne who have to go back to their lenders again and some lenders are moving from the Covid hardship plan that allowed clients to hold repayments without issues, to moving those clients onto serious hardship.
My client owns a normally very successful business that has been forced to close under Stage 4 restrictions in Melbourne. This is not a result of the clients actions. I appreciate Banks are businesses that have a responsibility to their shareholders, not assisting their clients in these times feels very wrong.
This situation in Melbourne is unprecentented, and lenders need to support people who are experiencing hardship as they are unable to work.
Some businesses I am dealing with have been closed since March and may not be able to open again until late November.
It is so important that before you take this step, there are a number of things you need to avoid this happening to you – because a repayment hold is not a holiday by any means.
Now on top of the interest capitalization and potentially higher repayments, there may be a serious impact on your ability to borrow in the future.
Hardship can be noted by your lender as arrears on your credit report.
Please ask the following questions:
1.) Will it affect your credit score? Traditionally putting repayments on hold is recorded as arrears on your credit file – during this crisis most lenders have not allowed this to impact your credit score. There are a few that we contacted that were unable to confirm.
2.) Will the deferred interest compound? This means will you pay interest on your interest, giving you a larger balance in the end.
3.) How long will repayments be on hold? Most lenders did an original three months, and will follow on request for an additional three months – you must request this so stay close to your lender and make sure you give them plenty of notice
4.) Will my loan term be extended? For most lenders the answer is no. This may have an impact on your future repayments, because it will make those monthly payments higher when the resume.
5.) Can my redraw be used to make repayments? In the terms of your loan contract your lender will probably be able to take any additional payments you have made on your home loan to cover arrears or late payments.
6.) What rate will I be paying when my payments are on hold? The default interest on home loans is generally higher, often by 2%. Check the rate your lender will apply to your loan while it is on hold.