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Want to know more about what it means to defer your home loan? We break down costs, how to get started and your alternatives.
Deferring your home loan repayments means that for a period of time, you won’t have to make repayments on your loan. Remember, you’ll still be charged interest over this time and you’ll also need to pay back the total amount in full to your lender eventually. Deferring your home loan repayments today could mean paying more over the longer term.
How much will deferring your home loan repayments actually cost
When you defer your repayments interest will continue to be charged and added to the balance of your loan, this is known as ‘interest capitalisation’. At the end of your deferral period, your regular repayment amount might be higher than it was previously because of that amount of interest added to your loan.
Once the repayment deferral ends
Once your repayment deferral has come to an end, the terms agreed by your lender and you come into play.
Often, this means either:
- Your minimum repayments to your lender might be raised to reflect interest added up during this time; or
- If the length of your entire loan term has been extended, you might be able to pay roughly the same minimum repayment as before, but you would be paying interest for a longer period of time.
Before speaking to your lender about deferring your repayments, you might want to read up on repayment types to explore your options.
Case study: Interest capitalisation
Video1If you’re experiencing fnancial difculty due to COVID-19, you may be able to put your home loan repayments on hold for up to six months. During that period, interest will continue to be added to your loan balance and will need to be paid back over your remaining loan term. This is known as Interest Capitalisation.
It’s important to understand that you may end up paying more interest over the life of your loan if you take up ANZ’s COVID-19 assistance. To catch up on the repayments you put on hold, your repayments will need to be adjusted at the end of the 6 months which means they could increase because you’ll be paying of a higher balance in the same period of time.
Depending on your repayment type, you may also have the option to extend your loan term for up to 6 months, meaning you’ll have more time to pay of your loan. In this case the new repayment amount could be higher because interest is being charged on the loan for a longer period.
Let’s have a look at an example of how these two options could work. Meet Pam and Ivy - each has a loan balance of $500,000 and they each take up ANZ’s COVID-19 assistance. They both have 25 years left to repay their loans, their variable interest rate is 3.79% per annum and their minimum repayments are currently $2,582 each month. Pam chooses to extend her loan term by 6 months, which means she will have 25 years and 6 months to fnish repaying her loan. To do that, her minimum monthly repayments will need to increase to $2,631. This means Pam could end up paying over $14,000 more in interest than if she had not put her repayments on hold. Ivy decides to pay of her loan within the remaining 25 years. To do that, her minimum monthly repayments will need to increase to $2,663. This means Ivy could end up paying about $8,500 more in interest than if she had not put her repayments on hold.
These are just examples, the outcome for you could be diferent depending on your circumstances. So think carefully before applying for assistance, and consider if there are other options available to you to help make your loan repayments.
To apply for assistance, please submit the form available at anz.com/hardship and we’ll be in touch with you.
Disclaimer
We made assumptions in these examples, such as no change to interest rates, the only payments Pam and Ivy make are their minimum monthly repayments of principal and interest and they don’t access any funds in redraw.Home Loan Repayment Options and Interest Capitalisation2:30Interested in tailoring the math towards your own financial situation?
You might want to check out our home loan repayment calculator.
How deferring home loan repayments can impact your credit score
If you and your lender have agreed to defer your loan repayments, this should not impact your credit score. However, if your lender does not agree to defer your repayments, that's a different story: your credit score will most likely be impacted.
Other options for staying on top of your home loan
If your circumstances have changed, you’re not alone. We’ve put together a handy hub of pages for staying on top of your home loan.
If you’re banking online with us, you can explore the following options by logging into your account:
- Ensure your repayment amount is reduced to the minimum amount
- Redraw extra payments on your home loan
You might also consider switching to interest only repayments or extending your interest only period.
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If you’re experiencing fnancial difculty due to COVID-19, you may be able to put your home loan repayments on hold for up to six months. During that period, interest will continue to be added to your loan balance and will need to be paid back over your remaining loan term. This is known as Interest Capitalisation.
It’s important to understand that you may end up paying more interest over the life of your loan if you take up ANZ’s COVID-19 assistance. To catch up on the repayments you put on hold, your repayments will need to be adjusted at the end of the 6 months which means they could increase because you’ll be paying of a higher balance in the same period of time.
Depending on your repayment type, you may also have the option to extend your loan term for up to 6 months, meaning you’ll have more time to pay of your loan. In this case the new repayment amount could be higher because interest is being charged on the loan for a longer period.
Let’s have a look at an example of how these two options could work. Meet Pam and Ivy - each has a loan balance of $500,000 and they each take up ANZ’s COVID-19 assistance. They both have 25 years left to repay their loans, their variable interest rate is 3.79% per annum and their minimum repayments are currently $2,582 each month. Pam chooses to extend her loan term by 6 months, which means she will have 25 years and 6 months to fnish repaying her loan. To do that, her minimum monthly repayments will need to increase to $2,631. This means Pam could end up paying over $14,000 more in interest than if she had not put her repayments on hold. Ivy decides to pay of her loan within the remaining 25 years. To do that, her minimum monthly repayments will need to increase to $2,663. This means Ivy could end up paying about $8,500 more in interest than if she had not put her repayments on hold.
These are just examples, the outcome for you could be diferent depending on your circumstances. So think carefully before applying for assistance, and consider if there are other options available to you to help make your loan repayments.
To apply for assistance, please submit the form available at anz.com/hardship and we’ll be in touch with you.
Disclaimer
We made assumptions in these examples, such as no change to interest rates, the only payments Pam and Ivy make are their minimum monthly repayments of principal and interest and they don’t access any funds in redraw.
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