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What happens when home loan deferrals end? Your questions answered.

Home loan holidays granted to borrowers impacted by Covid are winding up. So what happens next? What are your options? What help is available? Here are the answers to all of your mortgage deferral questions. 

*Please note that the information presented here is general in nature, and does not take into consideration your personal financial situation. You should consider seeking independent financial advice that is tailored to your needs and goals before making any decisions.

Mortgage deferrals end 31 March, 2021

When the pandemic hit in early 2020, it became clear that Covid-19 would have a significant impact on the lives and livelihoods of Australians. 

In March 2020, the banks announced that home loan customers financially affected by Covid could defer their home loan repayments for a period of up to six months. 

This was later extended, giving borrowers the ability to take a repayment holiday from their home loans for a maximum of 10 months, or until March 31, 2021.

About 10% of Australian home loan customers paused their repayments. Now, with the end date fast approaching, many are beginning to consider their options. 

What is a home loan deferral and how does it work? 

A home loan deferral – also referred to as a mortgage deferral, or home loan or mortgage holiday – allows the borrower to stop making regular loan repayments for a period of time. 

What happens to interest charges while my mortgage repayments are on hold?

Generally speaking, during this period, interest charges and fees continue to be added to the loan balance. 

Will I have to catch up on the payments I missed?

To catch up on missed payments, you can make higher monthly repayments when the deferral period ends or your lender may offer to extend the term (length) of your loan. 

If you can afford it, making higher payments to catch up the repayments you missed can be a good way to save money. It reduces the amount of interest charges and fees you have to pay over time. Discuss this with your lender.

What should I do if my bank is requesting repayments I can’t afford? 

Recent news suggests that some banks are putting pressure on borrowers to make bulk repayments to catch up what they owe, rather than restarting their repayments and extending their loan term. 

If this has happened to you, it’s important that you don’t feel pressured into payment arrangements you may not be able to afford. 

Before you start negotiating with your bank, make sure you’ve created a detailed budget to work out what terms and payments are affordable. 

If you’re not in a position to return to your pre-pandemic repayments, enquire about your bank’s financial hardship measures. You may qualify for an extended deferral period or other help. 

What if I can’t begin repaying my home loan? 

If you’re not going to be able to restart your home loan payments, you’ll need to contact your lender as early as possible to discuss your situation. 

There may be other options available to you, such as:

  • Switching to an interest-only loan which typically has lower repayments 
  • Using money in your transaction account to offset your home loan
  • Lowering your repayments and extending your loan term
  • Extending the deferral period
  • Help under your bank’s financial hardship provisions

Should I take out another loan to cover my home loan repayments?

Taking out a personal loan or using credit cards or payday lenders to cover your home loan payments is generally a bad idea.  

Not only may you find yourself in more debt, but these non-secured forms of debt are likely to come with higher interest rates than your mortgage. 

Can someone help me talk to my lender?

You have the right to appoint another person, professional or business to represent you in your dealings with your lender. 

For example, MyBudget’s team of experts may be able to help you create an affordable budget, then negotiate with your lender about payment arrangements on your behalf. 

What happens if my situation has permanently changed?

There will be borrowers whose situation has changed significantly and permanently due to job loss, business failure or other factors. Again, this is an issue to discuss with your lender as soon as possible or with a money expert. 

There may be alternatives you haven’t considered—for example, restructuring your home loan to lower your repayments or applying for financial hardship arrangements. 

Should I sell my home?

While the government encourages lenders to try to keep borrowers in their homes, ultimately, defaults will result in repossessions and forced sales. For some people, therefore, selling the property may be the best, if not only, option.

Keep in mind that selling your home does not necessarily mean going back to renting. It may mean downsizing or moving to another area. By selling your home voluntarily, you may avoid extra legal costs and achieve a better financial outcome. 

Don’t overlook creative options for generating more income from your home. You may be able to take in a roommate or border or rent out your garage, for example. 

Will my home loan deferral affect my credit rating?  

If your lender is a member of the Australian Banking Association (ABA), your COVID-19 home loan deferral will not have a negative impact on your credit rating. 

Further, thanks to new credit reporting legislation passed by Federal Parliament, if you need to access further financial hardship help, it’s less likely to affect your credit score.

Under the new laws, lenders must provide credit rating agencies with more information about the credit history of their customers, painting a fuller picture of the reasons behind any missed repayments. 

What are my next steps?

Feeling stuck? Not sure where to start? Creating a budget is a great place to begin because it will help you work out what mortgage repayment amount is affordable. Download a free budget template to get started. 

The next step is to talk with your bank or lender. Explain your situation and ask them to outline your options. Remember to have your budget in front of you and never commit to an arrangement you aren’t confident in keeping.

Is help available?

If you believe your lender has acted unfairly in negotiating new repayment terms for your loan, or your application for financial hardship has been unjustly denied, you can contact the Australian Financial Complaints Authority (AFCA) on 1300 565 562.

If you’re in the process of working out what sorts of repayments you can afford, you could seek help from a:

  • Friend or family member who is good with money
  • Financial counselling service
  • Accountant or  financial advisor
  • Personal budgeting and debt help expert

At a free consultation, MyBudget would be pleased to create a customised budget for you and to explore your post-mortgage deferral options. As well as designing an affordable plan, we may be able to speak with your bank and other creditors on your behalf.

Book your free consultation

The budget we create for you is yours to keep. Our recommendations are free and there is no pressure or obligation to join.

Contact MyBudget today on 1300 300 922 or request a callback


About the writer

Michelle Bowes is an experienced business journalist and personal finance writer based in Sydney. As a mum of three growing and very busy kids (and one growing and not so busy cat), she knows all about the daily juggle and understands the challenges Australian families face in managing their household budgets in the face of the ever-rising cost of living.

6 Steps to pay off credit card debt

At MyBudget, we’ve helped tens of thousands of people pay off their credit cards. Freed from debt, those same people have gone on to achieve financial goals that once seemed impossible. To help you get on the same path, we’ve created a free eBook that outlines six steps to get out of credit card debt quickly and forever.

Start with ‘why’

Before we start talking about HOW to pay off your credit cards, let’s talk about WHY. Aside from being one of the top causes of financial stress, credit card debt can hold you back from living the life you want. 

Because debt:

  • Limits your options
  • Reduces the size and number of your goals
  • Forces you to shrink your dreams

On the other hand, no debt means no repayments. And no repayments means more money in your pocket. And more money in your pocket means more choices. And more choices means more freedom!

That’s a lot of good reasons why getting out of credit card debt is worth it.

DOWNLOAD THE FREE eBOOK NOW

Believe you can and will

Our ‘6 Steps To Get Out Of Credit Card Debt eBook’ is designed to get you started on the road to being free from credit card debt and staying that way FOREVER. But before you begin the journey, it’s important to adopt the right mindset. 

You need to believe that life beyond credit card debt is achievable. In fact, it might even be closer than you think!

We know this because every week, we help thousands of Australians pay off their credit cards and achieve dreams they thought were out of reach. Holidays, house deposits, renovations, new cars, new babies—you name it. 

MyBudget client Sarah got debt-free and went on her first overseas holiday
“Since signing on with you guys, you have changed my life. I’ve paid off my car and have become officially debt free and I managed to go on my first overseas trip on my own which was only to New Zealand but it was so worth it! This was my view of Queenstown and it felt great!”

Step 1: Make a list of your outstanding debts and interest rates

This exercise is a simple yet powerful step towards understanding the extent of your debts. The free eBook includes a handy table to make this process easier.

Step 2: Contact your credit card providers

Banks and credit card companies are obliged to help you if you’re in financial hardship. They may be able to waive late fees, lower your interest rate or even freeze your payments. If you don’t feel comfortable talking with your bank, MyBudget may be able to talk with them for you

Step 3: Choose a debt strategy to suit YOU

Choosing the right debt strategy can be the difference between years of struggle and tens of thousands of dollars in credit card interest payments. So, which method will work best for you? Will it be the Avalanche, Snowball or Feel Good approach? Perhaps a combination? The ‘6 Steps To Get Out Of Credit Card Debt eBook’ explains these different methods in detail.

Step 4: Simplify your debts

Juggling multiple credit cards, loans and other debts can be confusing and stressful. That’s why one of your aims should be to simplify your finances. Download the eBook to understand the options that may be available to you.

The benefits of a proven approach: The majority of MyBudget clients pay off all of their unsecured debts in three years.

Step 5: Budget for the life you want

Budgeting is more than paying bills and setting aside savings. It’s about creating a plan for the life you want! Budgeting is also the secret to eliminating money stress once and for all. Holidays, cars, date nights, new clothes, a house deposit and more are all possible, without relying on your credit cards to make ends meet. 

Step 6: You don’t have to do it on your own

First steps are often easier if you know you have help. Our debt experts can help you design a customised budget and choose an affordable debt strategy to suit your situation. Plus, we can do all the heavy lifting that keeps your plan on track.

The eBook explains how MyBudget works and why our approach is so successful.

Free yourself from money worries

MyBudget provides free information and advice to help you get out of debt faster

Call 1300 300 922 or request a call back to find out more.

Debbie and Alan couldn’t get a debt consolidation loan. They did this instead.

Unable to get a debt consolidation loan from the bank, Debbie and Alan were looking at a Part IX debt agreement when they realised they might be able to pay their way out of debt instead. In this article, we take a closer look at debt consolidation and debt agreements and other strategies to get out of debt.

Australia’s debt situation

Australians are among the most personally indebted people in the world. Our household debt-to-income ratio (how much people owe compared to how much people earn in a year) is just short of 200%, a figure that has trebled since the 1990s. The only country with more household debt than us is Switzerland.

In less than 20 years, the average Australian mortgage balance has grown from $160,000 to $350,000. Renters are feeling the pressure too. According to this housing affordability report, on average, non-public housing renters spend 20% of their gross household income on housing costs, compared with 16% for those with a mortgage.

“It got to the point that we were scared of answering the phone.”

All of this debt adds up to a mountain of potential stress. When a household budget is already stretched, all it takes is an unexpected bill or even a small drop in income to break the bank. Over time, this is how savings get eroded, then credit card debt builds up, and suddenly the household is existing week-to-week.

Brisbane couple Debbie and Alan were in exactly that position. A series of events led to snowballing debt. They were racking up late fees and charges, and had the added stress of debt collectors chasing them. “It got to the point that we were scared of answering the phone, knowing that there could be someone at the other end wanting money from us,” says Alan. “Stress was causing a lot of anxiety in the household. It wasn’t a fun time at all.”

“Banks were no help.”

The obvious place to turn for help was their bank. Debbie and Alan wanted to pay back the money they owed by consolidating their credit card balances into their mortgage. This is called ‘debt consolidation’ or ‘mortgage refinancing.’

The aim of a debt consolidation loan is to roll multiple debts into a single loan that has a lower interest rate and lower repayment figure. As well as saving money and easing cash flow, having one loan with one repayment can be easier to manage.

One of the limitations of debt consolidation is that lenders usually require a property to be used for security. A real estate asset reduces the lender’s risk of losing money should the borrower stop making repayments.

Debbie and Alan spoke to a number of lenders about refinancing their home, but with bills and overdue payments stacking up, none of them were willing to help. Alan explains, “We’d tried talking to the banks about debt consolidation loans, but no one was coming forward with any assistance.”

Part IX Debt Agreement—what’s that?

While they were googling ‘debt consolidation,’ Debbie and Alan came across another type of debt solution, a Part IX Debt Agreement. Alan explains, “More than likely, it looked like a Part IX Agreement was something that could help us, but without knowing exactly what a ‘Part Nine’ was.”

Personal insolvency agreements (PIAs) and formal debt agreements, also known as Part IX debt agreements, are so-called because they are ‘Part IX’ of the Bankruptcy Act. Formal debt agreements are administered by licensed debt agreement administrators who, in turn, are regulated by the Australian Financial Security Authority (AFSA). MyBudget’s sister company MyDebtSolution is a Registered Debt Agreement Administrator.

As an alternative to bankruptcy, a Part IX Debt Agreement is an opportunity to negotiate a reduced sum payable to your creditors in instalments over a set period of time. Should the creditors accept the proposal, the debts no longer attract interest and the payments are consolidated into a single, easier to manage repayment for a fixed time, usually up to five years.

Although a formal debt agreement is considered an alternative to bankruptcy, it’s important to understand that it falls under the same laws and therefore comes with similar consequences. In some instances, applicants also face the possibility of being forced into bankruptcy by their creditors against their will. 

Alan and Debbie decided to explore their options.

But first, a detailed money plan

After talking with a number of debt agreement companies, Debbie and Alan approached MyBudget for a second opinion. MyBudget is uniquely positioned to help people explore their situation from all angles because the focus is on creating a detailed financial picture before choosing a solution, such as bankruptcy or a debt agreement.

The first step was to help Alan and Debbie create a customised household budget for the next 12 months. This detailed money plan included all of their income, debts, bills and living expenses, and mapped a path to their financial goals. 

MyBudget founder and director Tammy Barton explains, “Before you can help someone select the right debt strategy, you need to have a detailed understanding of their financial situation. Not just how much they owe and their loan repayments, but a complete picture of all their incomings and outgoings. That includes often overlooked expenses, like Christmas and birthday presents and vet bills and unpaid time off—everything.”

Informal debt negotiation

Debbie and Alan were pleasantly surprised. MyBudget was able to help them design an affordable budget that allowed them to avoid any further late fees and charges while they paid their way out of debt.

It’s called ‘informal debt negotiation.’ Instead of entering into a formal debt agreement, MyBudget negotiated informally with Debbie and Alan’s creditors to set up affordable payment arrangements that helped them get back on their feet. 

The stress of paying bills was taken away because the couple’s payments were made directly from their budget. Alan adds, “One of the best things MyBudget has done is handling all of our creditors on our behalf. So now we’re not scared of the phone ringing. MyBudget has taken our financial wellbeing into their hands and we now have savings we can work with. They’ve really done wonders for us as a family.”

Could you pay your way out of debt, too?

In some circumstances, a Part IX debt agreement is a good method for reducing the cost and stress of debt. But in Debbie and Alan’s case, they were able to get back on their feet using their existing income and without needing a loan. 

The sense of relief was almost instant. Debbie says, “The weight was lifted. We walked out of the [MyBudget] office smiling. We had ideas about what we could do in the future. It was wonderful.”

And in a few short years, Debbie and Alan were not only back on track, they had savings set aside for family holidays and were totally free of the debt that had been causing so much stress and worry.

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To book your free budget consultation, call MyBudget on 1300 300 922 or enquire online to find out how we can help you achieve your financial goals.

Read MyBudget client stories on our website or learn more about debt consolidation and bankruptcy:

Debt Consolidation and Refinancing Guide

Your Complete Guide to Bankruptcy in Australia

Budgeting for Black Friday (here’s your game plan!)

Do it right and the upcoming Black Friday sales could save you money and boost your budget. Or do it wrong and you could end up eating baked beans on ‘Broke Saturday.’ That’s why we’ve come up with a seven-point Black Friday Shopper’s Game Plan!

Why is it on a Friday? And why is it black?

To understand where one of the biggest days on the world retail calendar comes from, you have to appreciate where it all began. Thanksgiving in the United States always falls on the fourth Thursday of November and Black Friday follows the day after. This year, Black Friday is on November 27. 

As well as marking the beginning of America’s Christmas shopping season, the day after Thanksgiving is a popular unofficial holiday. A lot of Americans take the Friday off so they can have a four-day weekend.

Basically, Black Friday is the American equivalent of our post-Christmas Boxing Day sales. Because the best antidote for an overload of turkey and gratitude is a rough-and-tumble consumer frenzy, right? In fact. one suggestion is that police coined the term “Black Friday” to describe the public chaos it invokes.
 
In case Black Friday isn’t enough, the weekend is then bookended by Cyber Monday. Whereas the focus of Black Friday is on elbow-to-elbow jostling at the shops, Cyber Monday is all about online deals. (In reality, most retailers run online and in-store sales simultaneously.)

Black Friday in Australia

Like many things American (eg. Lindsey Lohan), Black Friday has made it to Australian shores. But the numbers are a lot smaller here. Around 20 percent of Australians participate in Black Friday sales, compared with a staggering 70 percent in the US. 

That being said, the popularity of Black Friday is predicted to increase with more and more big box retailers jumping on the bandwagon, including JB Hi-Fi, Kogan, eBay, Harvey Norman, Sephora, Amazon, and a lot of small retailers too. 

One of the reasons that Black Friday is so popular is that it conveniently falls the week before December as people are switching into Christmas shopping mode. So, do it right and Black Friday could be the perfect time to cross off a lot of Christmas shopping. Or do it wrong, and you could fall victim to ‘Buythagoras’ Theorem: 

That’s why we’ve come up with the following seven-point game plan. Because there’s nothing wrong with shopping—as long as your strategic about it!

Your Black Friday Shopper’s Game Plan

1. Start with Christmas budget planning

Who are you going to buy Christmas presents for this year? Get like Santa and write their names on a list. Next to each person’s name, write a dollar amount for how much you’re going to spend on them. Add up the total. Can you afford it? (More specifically, can you afford it without selling a kidney or using your credit card?) If yes, great! If no, go back and adjust the amounts. 

Use our Christmas budget template to help you plan your gift list and spending!

2. Then make a personal wish-list

If there’s any money left over in your budget, make a wish-list of Black Friday bargains to buy for yourself. Alternatively, now is a good time to drop hints for Christmas, such as “Hey [insert loved one’s name]. You know how for Christmas I’d really like [insert item name]? It’s on sale this Friday!”

3. Do your research before Black Friday

Retailers have been known to put prices up during a sale because they know shoppers will be in a buying mood. The only way to know you’re getting a genuine deal is to research prices before Black Friday begins. 

4. Check the payment terms

Don’t wait to get to the cash register to discover what your payment options are. Some retailers will limit payment methods on Black Friday deals. Others may allow you to layby, which can be a great way to lock in a discounted price for a small deposit.

5. Cash is still king

One way to know if there’s wiggle room in the sale price is to ask what payment methods are available. If Afterpay or interest-free finance is accepted, you can be confident that the retailer is paying around five percent commission to a finance company. Don’t be afraid to ask for a cash discount.

6. Check return and refund policies

Some stores have special policies during promotions, such as “sale items are final—no exchange or refund.” If you’re not sure that the item will be the right fit, size or colour, you want to know that you can swap it or get a refund or credit.

7. Know what the Aussie Dollar is worth

If you plan to shop online at overseas stores, don’t forget to factor in the cost of shipping and the currency exchange rate. At the time of writing, the Aussie Dollar is buying just 68 US cents. It really adds up—$100 USD works out to around $146 AUD. For up to date exchange rates, go to www.xe.com

From desperately in debt to living your dream life in 12 months

As the year draws to a close, we follow the journey of Sydney couple Megan and Creagh and reflect on just how quickly their financial outlook can turned around in 12 short months. They went from desperate to living their dream life in the time it took the Earth to do a single orbit of the sun. See how they did it.

“We needed to break the debt cycle”

A lot of people say that financial stress feels inescapable. Tangled in a maze of bills, it’s hard to move in any direction, let alone see a way out. Long-term goals, like owning a home or starting a family, feel like pipedreams. Anxious and sliding deeper into confusion, the idea of emerging out the other side seems impossible.

This is where Megan and Creagh’s journey began. Despite having good jobs, the couple, both in their thirties, had amassed nearly six-figures of debt. Most of it was credit card debt that came from overspending on little things, like regularly eating out. “It wasn’t big lavish expenses that got us into trouble, it was day to day stuff,” Creagh says. “With the credit cards, it was just like ‘oh well, pay it off later’ and it was always later.” Creagh continues, “It was easy to roll one credit card into another—it was a never-ending cycle and we needed to break that cycle.”

Try a new direction

But how do you break a debt cycle? Megan and Creagh tried to get themselves out of debt with zero-interest credit card balance transfers only to find that it backfired. They ended up with more cards and more debt. “I wanted to go forward, but I felt like we were standing still,” says Megan.

When you find yourself stuck in a rut, one of the keys to breaking free is to try something new. For Megan that was calling MyBudget. She booked a free budget consultation for her and Creagh. Eleanor was the MyBudget money expert they met with.

Eleanor says, “The first thing I assured Megan and Creagh was that it doesn’t matter what your starting point is. I’ve come across situations that are more complicated, and I’ve never seen a problem that can’t be fixed. It’s all about coming up with a plan and the sooner you start, the better.”

And that’s exactly what they did. Eleanor helped Megan and Creagh create a detailed personalised budget by going through all of their debts and expenses. “To create a budget plan that actually works, you need to map out all your expenses and income for the next 12 months,” explains Eleanor. “And I mean everything. As well as all your debts and recurring expenses, you’ve also got to include the bills that only come up once a year, like insurance and car registration and Christmas. You’ve also got to set money aside for unwanted surprises, like vet bills or car repairs.”

Come up with a plan

“Once we had everything in the budget, Megan and Creagh had a detailed picture of where all their money was going,” says Eleanor. “It was that light bulb moment when they finally had a proper picture of their finances. Megan and Creagh didn’t need our help talking to their creditors, but that’s something we often do for people. We’re often able to suggest payment arrangements that are more affordable, which can help someone who has a lot of commitments. It gives them time to pay their way out of debt without needing new loans or credit.”

But is it hard to live on a budget? Megan answers, “We still have the option to go out to concerts and comedy gigs and go out to dinner … These guys [MyBudget] are so helpful and they know what they’re doing.” Money Coach Eleanor puts it this way: “The main change is that Megan and Creagh are using their money more effectively. As well as having a budget in place, all of their bills and payments are now automated. Their income is organised into streams, so there are no surprises, and they have a whole team of experts doing the work that keeps their budget on track.”

A complete transformation

In one year, Megan and Creagh have emerged from a winter of debt into the financial spring of their dreams. They’ve paid off five credit cards in 10 months (about $60,000 of debt) and the idea of saving for a house is no longer out of reach.

Megan says, “We’re getting our paperwork together to begin the loan process for a house, so we’re starting to go to open houses and look online. It’s something I didn’t think would ever happen before MyBudget and now it’s here and it’s such an amazing feeling to have all that hard work pay off.”

Creagh follows up, “MyBudget has been the best decision we’ve made. A weight is lifted off our shoulders. The one regret I have is that I didn’t ask sooner. It has literally changed our lives.”

But is it really possible to transform your finances and life in such a short period of time? “It’s absolutely possible,” says Megan. “Each week, as we saw our bills get paid and those savings start to build⁠, it’s an incentive to keep going, to keep sticking with the budget because that’s going to lead to the end goal. Truly, asking for help was the best step.”

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