Pausing your mortgage; who does this help and what are the projected long-term effects?
The fight still remains to #flatternthecurve, as restrictions and isolation guidelines remain steady in place. We’ve witnessed many people, either overnight or within days, battle to keep their jobs and in-turn, keep their livelihood alive, as government restrictions limit trade across many industry platforms.
COVID-19 has already had a major impact as many are left in financial hardship or negative economic positions, as their income evaporates. Over the past few weeks, we’ve seen banks acknowledge and respond to this new economic landscape, by offering repayment pauses, enabling mortgage holders the opportunity to pause their regular repayments in order to survive.
So, what would this look like for our clients?
The process
According to Tango Loans co-director, David Fraser, ‘although each bank has their own set of guidelines; most will accommodate a request to freeze mortgage repayments during this time, acquiring application approval after a discussion with their bank’.
Customers have the option to apply either by phone call or online application. David, a mortgage broker for over decades, explains ‘this holiday in repayments agreement is designed to span six months, to help customers manage their cashflow during the time the economy goes into hibernation.
The consequences
Fraser suggests individuals need to seriously consider entering into this repayment holiday agreement as ‘although it can provide respite now, interest will continue to accrue on the loan, inevitably increasing the minimum regular repayment once the six month period is up’.
Pausing a mortgage repayment should be considered a last resort and is generally for people who have lost all aspects of their income and cannot manage their repayment in combination with the essential costs of living. Choosing to enter into this agreement, however, will not affect future, individual credit ratings.
Alternative options
When discussing alternative options, David stresses ‘before one considers pausing their regular mortgage repayments, they should investigate interest only repayments during the hibernation period’.
For individuals or families who carry multiple debts, including multiple home loans, credit cards and/or personal loans, debt consolidation may help. David explained ‘the consolidation of multiple debt channels, could see the loan holder save a huge chunk of their money. Streamlining their repayments and working towards becoming ‘financially fit’ has multiple benefits, not all of which are financial’.
Although the banks have adapted to the current financial climate, providing immediate respite for those who need it, it is important to acknowledge that if your circumstances have not yet changed, and you can continue to make your repayments, you should.
To find out how David and the entire team at Tango Loans can help you access further information regarding mortgage pauses or additional financial services, please visit https://www.tangoloans.com.au/about-us.
