In March this year the Government introduced the idea for Banks to offer a six month ‘loan deferral scheme’ to assist those who had reduced or nil income following COVID trade restrictions.
This loan deferral scheme allowed borrowers to pause their mortgage repayments for the short term while they deal with the financial impact of the coronavirus pandemic; However, as we are finding those six months are passing by quickly with September just around the corner and no real end in sight for the pandemic.
In light of this the Australian Bankers Association (ABA) recently announced ‘phase two’ of COVID-19 Deferred Loans which will allow customers the potential to extend the six-month loan deferral scheme by another four months.
This next phase requires customers who can restart paying their loans to do so at the end of their six-month period. It may help here that Banks are assisting people to restructure their loans and reduce their interest rates as a primary step before deferring payments.
Those who are still severely financially impacted and are unable to make repayments will be able to contact their Bank and apply for an additional four-month extension through the hardship provision process.
With regards to the Financial Planning of this additional four months, one must consider their own finances and the future of their income prospects.
If financially viable it could provide great relief to recommence paying off debt and to also avoid the loan term being extended too far into the future. In contrast the other Government stimulus packages Job Keeper and Seeker, are also set to end in September making this deferral extension is a great relief (and lifeline) to those who are not financially back on track yet.
In summary, we have to remember that the deferral option is just that, deferring the day you (still have to) repay the mortgage so consideration is needed to determine if ‘hardship’ or ‘severe financial distress’ relates to you. If it does, please feel free to reach out to a Financial Counsellor or Financial Adviser to help guide you through your options.