Mortgage customers contacting lenders to drop repayments during coronavirus pandemic

Financial institutions have been inundated by mortgage holders demanding their repayments be lowered so they can cope financially during the coronavirus pandemic.

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Exclusive: Thousands of cash-strapped borrowers have switched to minimum repayments on their mortgages to urgently free up extra money.

Several of the nation’s biggest banks including the National Australia Bank and Commonwealth Bank have reported a doubling of customers requesting their payments drop immediately.

Since June last year there have been five rate cuts and when this happens most banks keep customer’s payments at a higher rate, rather than reducing them to the lowest repayment amount.

This allows the customer to get ahead of their scheduled repayments and build up a buffer.

A NAB spokesman said they have seen a surge in customers requesting their repayments be lowered to help them through the COVID-19 outbreak.

“We’ve seen more than double our normal number of requests for customers to reduce their repayments and we’re now actively reducing the minimum repayments for our variable rate, principal and interest customers,” he said.

“Customers have the option to reduce their regular repayments if they need to access cashflow, which for the average home loan is a reduction of approximately $150 per month.”

The Commonwealth Bank has seen many customers reduce their mortgage repayments to the minimum repayment amount.

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Reducing to minimum repayments means customers are not paying any extra off their loan – they are just paying the lowest principal and interest amount that would see them pay off their loan over the remaining duration left.

On a $300,000, 30-year mortgage with a variable rate of 3.5 per cent the minimum monthly repayments are $1347.

CBA saw a doubling of the number of account holders reducing repayments to the minimum in the last two weeks of March compared to the prior two weeks.

From May 1 the bank will automatically reduce customers’ repayments to the minimum amount to free up an average $400 per month. Customers can opt out of this change.

One of the nation’s largest broking firms Aussie’s chief executive officer James Symond said they had received a huge influx of calls from existing and new customers reviewing their home loan arrangements.

“There are many options available to customers during this time, such as lowering repayments to the minimum amount or requesting a repayment deferral,” he said.

“These options can be discussed with a mortgage broker to ensure they are right for your individual circumstances during this uncertain time.”

Mortgage Choice chief executive officer Susan Mitchell said switching to minimum repayments could be a good option for borrowers who want to free up cash quickly.

“If you’re on a variable rate home loan, chances are you may have been paying more than your minimum repayments following several cash rate cuts from the RBA,” she said.

“It’s worth checking with your lender to see if you have an available balance on your home loan that you can access if you’re suddenly unable to make repayments.”

Hundreds of thousands of mortgage customers have already requested deferrals on their loans, allowing them to not make any repayments for up to six months as they are impacted by COVID-19.

@sophieelsworth

Originally published as Mortgage customers contacting lenders to drop repayments during coronavirus pandemic