Options you can take to get mortgage relief and free up cash

This clever debt-busting trick saved a struggling Aussie couple more than $1000 each month. Could it help you?

Struggling to pay your home loan? Hefty repayments got you down? You’re not alone.

The latest APRA data shows mortgage arrears continue to rise across the country as money in offset accounts dwindles.

Loan Market Geelong managing director and mortgage broker Sarah Thomson said people are doing it tough after 13 interest rate hikes.

“A lot of people are struggling,” she said. “At the moment we are seeing people who have cut back and can’t cut back any further.”

Mortgage arrears are continuing to rise across the country.

But fortunately, there are options people can take to get mortgage relief – the important thing is to act early, she said.

Founder of First Choice Mortgage Brokers Tony Bice agrees. He said the worst thing struggling borrowers can do is nothing.

“It’s better to ask the bank for relief rather than just stick your head in the sand,” he said.

“Most banks these days are well aware of the media focus on mortgage distress.”

FIRST STEPS TO RELIEF

Before thinking of refinancing, struggling borrowers should find out whether they can reduce the interest rate charged by their current lender, Bice said.

It’s shocking just how expensive life has become, but there are ways to find mortgage relief. Picture: iStock

“First thing you should be doing is making a phone call via your broker to get a sharper interest rate with the bank you’re with,” Bice said.

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It could be that your bank is willing to shave off a decent amount from your rate, as long as you’re not locked into a fixed rate term.

But even then, it doesn’t hurt for your broker to shop that rate around with other lenders to see if they will go one better, he added.

If your situation allows for it, refinancing could be advantageous.

REFINANCING 101

If both borrowers are still working and there is equity available in the property, refinancing can be an advantageous option, Bice said.

If you are able to refinance to a sharper interest rate, you may also like to consider refinancing over a longer loan term, he added.

This reduces the size of your repayments further – and you’ll have the option of increasing your monthly repayments later on when your financial situation improves.

Loan Market Geelong managing director Sarah Thomson. Picture: supplied

WHEN TO SEEK A REPAYMENT PAUSE

While refinancing is a good option if you haven’t suffered a job loss or reduction in pay, there are times when it simply won’t be possible, said Thomson.

A borrower going on maternity leave or suffering a job loss are two situations that most lenders won’t consider when it comes to refinancing.

But, while banks differ according to policy, many will allow borrowers to take a break from making repayments if they are facing financial hardship, she said.

Keep in mind that a repayment pause will be recorded on your credit rating and will most likely affect your ability to refinance later down the track.

It will also affect the loan itself, she said, explaining it could either extend the loan term, create higher repayments when you come off the pause or add interest over the life of the mortgage, depending on the policy of the lender.

When it comes to seeking relief from your lender, there are pros and cons to weigh up.

INTEREST-ONLY VS FIXED RATE

Reverting to interest-only payments is another option most banks will consider if a borrower is facing arrears, Thomson said.

“When it wasn’t such a cost of living crisis, when you were reverting back to interest-only, banks needed a really, really good explanation as to why you wanted to do it – and a lot of them potentially wouldn’t,” she said.

But since the cost of living has skyrocketed, more banks have become amenable to letting borrowers switch to interest only during periods of poor affordability.

And while switching to a cheaper fixed rate loan may seem like an attractive option now, it could cost you far more once interest rates start to come down, Bice said.

“Right now fixed rates are probably not an attractive option because, like most people, we think interest rates are going to reduce,” he said.

Your mortgage broker could give you advice on the best options for your situation.

CLEVER DEBT-BUSTING TRICK

Thomson said while it’s hard to stash away extra savings in a cost of living crisis, she has helped her clients set aside more than $1000 each month with this clever debt busting move.

“We had a client that had two car loans and a mortgage,” she said. “By consolidating those they’ve basically freed themselves about $1600 per month.”

By rolling their debt into one loan, the clients added about $50,000 onto the balance of their home loan but they saved on the interest rate being charged.

They also streamlined their monthly outgoings into one, easy to manage repayment, alleviating both financial and emotional stress while freeing up some extra cash.

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Originally published as Options you can take to get mortgage relief and free up cash