The Delta strain has most definitely put pressure on wallets. Greater Sydney is in its third month of lock down. All of NSW now finds themselves locked down. Victoria is currently in its sixth lockdown, and most states and territories have also been in and out of various restriction levels. The impacts on many people’s finances have been keenly felt.
One of the most stressful things for many home-owners has been meeting mortgage repayments and what actions they can take to avoid defaulting on their repayments.
Many people have found themselves laid off mid-way through their purchase process, with home loans approved by their lender but not yet settled, leaving them in limbo.
In the first of a two-part post, we look at some of the most common questions and concerns for existing home-owners. In the next post, I will look at some of the most common pandemic concerns for those saving to buy property.
The first thing to do is contact your lender or your mortgage broker, who can advise what measures are in place to assist customers impacted by COVID restrictions. Many banks and non-bank lenders have announced measures to support eligible affected customers, including a repayment holiday or deferral of up to six months and a waiver of fees, including free offset withdrawals and late payment fees.
Most lenders have been on the front-foot advising customers, so please contact your lender if you have not received communication.
While a repayment holiday is preferrable, you can also consider a hardship variation, which enables you to change the loan terms or temporarily reduce payment amounts. To apply, you need to send a letter to your lender outlining your reasons for requesting a change to the terms of your home loan. Contact your mortgage broker or lender to find out what information is required, but usually it is providing the details of your loan, why you are having trouble meeting your payments, how long you think you will have difficulty meeting them, and information on how much you can afford to pay. You can generally expect a response from your lender within 21 days.
When you apply to refinance, you are applying for a new loan, with your income and expenses assessed the same way as they would be when you secured your current loan. Mortgage brokers and lenders generally ask for at least two months’ pay slips or three months bank statements to assess your household income. Unfortunately, lockdown payments are not considered an acceptable form of income by most lenders.
If you had imminent plans to refinance, but receive COVID relief payments from the Government, our advice is to postpone your refinancing application until at least three months after you stop receiving Government support.
In assessing any loan application, lenders look at your ability to make repayments (also called serviceability). That includes your repayment record for any previous loans. If you have taken a repayment holiday or made a payment variation due to hardship, it may substantially reduce your chance of success if you can’t show a record of perfect recent repayments.
Most lenders require between six and twelve months of perfect payment records following a hardship variation, a deferral or a home loan holiday. Some lenders may only need three months of perfect records. You should speak with your mortgage broker to understand the requirements for your preferred lender.
If there has been a material change in your circumstances since your original Home Loan Approval, you must let your broker / Lender know. For example, you start receiving COVID payments in lieu of wages because you are unable to work.
Most banks are currently not treating the Government lockdown payments as acceptable income. This means your Approval may be Withdrawn until your circumstances change and you start earning wages / income again. All Lenders have slightly different rules and you should contact your broker or lender for your specific circumstances.