Many financial institutions have offered their customers the option to defer their home loan repayments if their income has been reduced. But what is the impact of deferring your home loan repayments? Should you consider deferring your home loan repayments? What are the pros and cons of deferring your home loan repayments?
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Deferring your home loan repayments means requesting your lender to defer your repayments during a specified period. Currently, the deferral period is usually 3 months.
For customers who have lost their job or suffered because of the COVID-19 situation, do not stop making your repayments, you must apply and be approved for deferred repayments.
If you stop making repayments before you have been approved to defer your repayments, your home loan account will be considered to be in default. If you default on your repayments, your lender may charge you penalties, they may enforce their rights under their mortgage, and they will record your default with the credit reporting agencies.
If you have been approved to have your home loan repayments deferred, your home loan account will not be considered to be in default during that period and your account will show as ‘up-to-date’ on your credit history report.
If the impact of COVID-19 means you have lost your job or your income has been reduced and you do not have the cash to make repayments and pay the rest of your expenses, then deferring your repayments may be an option for you.
How much additional interest you pay will be determined by several factors including how much you owe, the deferral period, the remaining term on your loan, your interest rate, and the repayments you make. Interest charges are applied during the deferred period, and interest is capitalised, which means that your loan balance will increase.
Taking up a deferment on your home loan repayments is up to you and your situation. However, understanding the pros and cons will help you make a decision that is right for you.
You can use our mortgage repayment deferral calculator as a guide to what your repayments could be on your home loan if you were to apply to defer your mortgage repayments.
This information is general in nature and has been prepared without taking your objectives, needs and overall financial situation into account. For this reason, you should consider the appropriateness for the information to your own circumstances and, if necessary, seek appropriate professional advice.
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