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Mortgage holidays are ending - what to do if you can't afford to pay

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The cliff is fast approaching for people using JobKeeper to help pay their mortgage. The benefit ends on March 28. The big question is will they have to sell their home if they can't pay their mortgage? And what can they do if they have deferred their mortgage because their finances are still impacted by COVID?

First, some background on the banks' offer to put a pause on mortgage repayments. Around 500,000 mortgages were deferred in June last year. A pause means higher loan repayments or extended terms when people restart their loans because the interest has been charged on their home loan during the pause and added to the total loan.

This means people want to start repaying their mortgage if they can. As the economy partially recovered by November last year, 66% of people took their mortgage off pause and started repaying their mortgage. But there were still 145,250 people on a mortgage holiday for their home loan.

mortgage holidays are ending what to do if you can't afford a mortgage payment

Here are some strategies to help with your mortgage repayments:

Contact your bank

Many people have been in contact with their banks throughout their mortgage holiday but if you haven't and are worried about your ability to pay your mortgage, Anna Bligh, CEO of the Australian Banking Association (ABA) says: "Don't wait till you are in over your head, talk to your bank, they'll help you find a way through this. Don't tough it out on your own."

Extend your mortgage pause

While many bank customers of Australia's 22 banks were given a six-month loan deferral, it may be possible to work with your bank to restructure a further four-month deferral, says the ABA. But it isn't an automatic extension, it will only be provided to you if the bank believes you will be in a position to start repaying your mortgage at the end of the period.

Redraw funds

If you are ahead on your mortgage repayments, you will have some available funds in your home loan that you can access to put against the mortgage.

Insurance

You may have insurance that may cover you in the event of illness or involuntary unemployment.

Adjust your payments

Can you reduce your repayments if you are paying more than you need to pay? Or pay monthly instead of more frequently such as fortnightly or weekly? Or can you reduce your repayments?

Switch to interest-only

You may be eligible to switch your repayments to interest only. Check the date as some banks such as the Commonwealth Bank have a deadline for interest-only loans of March 31, 2021.

Use an offset account

Linking an offset account to your home loan could help you pay less interest over time. Any money you put into your everyday offset account reduces the balance of the home loan, so you pay less interest. For example, if you have $40,000 in your offset account and your home loan balance is $350,000, you will only be paying interest on $310,000.

Can't pay

If you can't pay your mortgage, banks do offer a process known as financial hardship. If you are in financial hardship, the bank has to work with you to figure out your best long-term solution.

You can request a repayment arrangement as long as you can repay the loan in a reasonable period.

This could include a short-term reduction in repayments, waiving fees and charges or consolidating debts to make them more manageable.

If your bank isn't responding, you can seek a review of the decision by the Australian Financial Complaints Authority. It received 1,055 complaints about home loans from March to December last year. Some 1032 complaints were about a financial firm's failure to respond to a request for assistance.

National Debt Hotline

If you're feeling overwhelmed with financial decisions, a financial counsellor can help you put a plan in place. Call the National Debt Helpline on 1800 007 007. The helpline is open Monday to Friday, 9:30am to 4:30pm.

State government assistance

If you are unemployed or have reduced hours of work or lost income as a small business, check with your state government for any financial help with residential rates and utility bills.

We're cutting through the confusion to help you manage your money during the coronavirus outbreak. Click here for more on how COVID-19 could affect your job, budget, super and investments.

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Susan has been a finance journalist for more than 30 years, beginning at the Australian Financial Review before moving to the Sydney Morning Herald. She edited a superannuation magazine, Superfunds, for the Association of Superannuation Funds of Australia, and writes regularly on superannuation and managed funds. She's also author of the best-selling book Women and Money.
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