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How mortgage holders could save hundreds of dollars a month

Published: (Updated: ) in Australian News by .

A new lifeline is now being offered by the big banks which could save struggling mortgage holders hundreds of dollars a month.

A new lifeline is now being offered by the big banks which could save struggling mortgage holders hundreds of dollars a month.

During the coronavirus crisis, borrowers have been able to hit pause on their repayments for up to six months.

But with that due to end in September, more relief is being made available.

Three of the major banks - Commonwealth, ANZ and Westpac - will now allow more home owners to switch to an interest-only loan for a year, or extend their existing interest-only payments under loosened criteria.

"Banks have said we will relax and give people greater access to interest-only," Steve Mickenbecker, group executive for Canstar said.

"If you're already in an interest-only loan we'll extend it by 12 months without asking too many difficult questions and if you're looking to transfer into it for a period of 12 months, well we'll ask a few more questions but we're making it more accessible."

According to figures provided by Canstar, a home owner with a $400,000 home loan over 30 years is expected to save about $476 every month for 12 months through interest-only, compared to a tradition principle and interest repayment. 

"(An interest-only loan) does not at the end of the day stop the loan as such, you're only paying the interest on the loan and no principle," mortgage broker Ruan Burger from Time Home Loans explained. 

"The criteria (for the offer) is so far you can't borrow extra, you can't be in hardship."

Two years in to paying off her mortgage, single mum Kiki Devgun's household budget has been turned upside down from the pandemic. 

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"I'm self employed part-time so we had to stop doing business completely," she said. 

"Home is supposed to be a safe haven, so if you can retain it instead of facing eviction or your home being sold I think definitely that's a really good option for people."

But financial experts have warned of long term impacts, including a higher interest rate and becoming behind in your loan. 

"So you'll be paying more interest over the life of the loan and you'll be returning to a higher repayment when you come off the interest only period," Mr Burger said.

To see if you're eligible to make the switch, you can contact your lender. 

Source: 9News https://www.9news.com.au/national/interest-only-loan-deals-offered-by-big-banks-after-coronavirus-pandemic/3b2b1e15-1e90-42d4-8b2a-b5ccfaed0caf

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Finance Advice 2021