3 words mortgage holders need to know to secure ‘instant relief’
It’s possible you’ve reached peak mortgage pain thanks to the cost-of-living crisis and interest rates being kept at 12-year highs. Sadly, the number of households in mortgage stress is at levels not seen since the global financial crisis in 2008.
Well, what if I told you that with one phone call to your lender, you could get instant relief on your repayments? And that’s not just for a week or two, you could be granted relief for up to six months.
You just need to know the exact words to use to trigger concessions.
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The must-use words to win a repayment reprieve
A recent report criticised lenders for not doing enough for borrowers who said they were in financial hardship. Notably, 54 per cent more people did so in the last quarter of 2023, than in that same quarter in 2022, with a huge 52,826 borrowers applying.
ASIC investigated 10 lenders’ assistance track records and found them wanting, saying the process is sometimes so difficult that one-third of applicants give up.
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But once you get through to the right department (one of the complaints ASIC noted), I am hearing from borrowers who have successfully applied for mortgage hardship that one strategy works.
In all your communications, emphasise that you just need a bit of temporary breathing space in your finances.
And you most effectively do this with three must-use words: “It’s short term”.
Don’t forget, we are getting a tax cut on July 1, the next interest rate move – though not soon – will likely be down and the recent budget contained a few cost-of-living handouts. Over time, you should also see your salary creep up.
This is all important because banks are not giving open slather, COVID-degree hardship concessions this time – they’re being careful to protect their balance sheets. Having a lot of borrowers behind on their mortgages hurts that.
Embedded in the home-loan ‘holidays’ on offer are also some serious traps.
Your must-do before signing a deal
There are three must-do moves you need to make prior to signing a home loan hardship deal with your lender to stop it from hurting you.
Must-do move 1: Before a home loan holiday of any kind begins, you should get any money out that you might have repaid extra into your mortgage. Lenders may freeze redraws after you are granted home-loan hardship or they may even take your repayments from this money, which is not what you want if this was intended as savings. These are just some of the reasons making overpayments directly into a mortgage can be a risky idea.
Warning before must-do moves 2 and 3: It’s ludicrous, but some lenders are requiring you to repay how much you fall behind, immediately after your hardship provision ends.
In the pandemic economic panic, they simply extended your loan term by the amount of time you’d had special treatment, which means they are collecting bonus interest on home loans all over the country.
That’s another thing to note with repayment holidays. Even though your repayments will come to a halt, interest will keep accruing on your home loan.
Today, if your original loan was 25 years, it will stay 25 years; 30 will stay 30, etcetera. And the only way they can achieve that is to make you pay extra after a hardship deal.
In other words, after the budget break, it could break your budget. However, you can cleverly control this with:
Must-do move 2: Plan to not be in too good a position at the end of repayment relief. Do what you can to delay your return to solvency – we’re assuming there is going to be one because remember “it’s short term” – until after your home loan holiday ends.
Otherwise, a capitalisation assessment could find that you’re sweet enough to fix your arrears, pretty much, instantly. Your lender may determine you should pay it back in as few as three months.
And your home loan payments could go dramatically, dangerously up.
Must-do move 3: Speaking of arrears, don’t fall more than an effective 90 days behind.
Lenders take a dim view of this and will subject you to a much more rigorous capitalisation assessment at this point. This time, from a safety and administration perspective, keep it to no more than 89 days.
Despite the concerns the ASIC report raised, borrowers are getting relief in the form of full home loan holidays of three months, part holidays of six months, reduced interest rates and all sorts of other mortgage concessions.
Or they are if they utter the must-use words and make the must-do, pre-signing moves.
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