COVID-19 & Financial Distress | Your Options | The Researcher

Frozen Loan & Overdue Repayment? What Are Your Options Now?

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Since March 2020, as a result of the COVID19 pandemic, we’ve witnessed one of the biggest drives for mortgage repayment pauses. Banks are providing a 6-month deferral period to all homeowners to service their home loans, however, what are your rights and responsibilities at the end of that period?

After the end of the first phase of this repayment pause period, an extension was offered during the 2nd phase. In this phase, banks are directly negotiating with the borrowers vis-à-vis the conditions for repayment. One of the prospective terms is a further deferral of 4 months. 

However, it is probable that your income may not allow you to service the loan even when the repayment pause ends. If you find yourself in such a situation, then here are a few options available to you. 

Go for Interest-Only Repayments 

Usually, loan repayments include a principal plus interest amount in monthly installments. However, you can choose to go with an interest-only structure to save money while regularly servicing your payments. By paying only the interest, you will be easily able to free up some cash from your monthly earnings.

Longer Loan Term

If you find your current monthly installments too high to repay, then extend the term of the loan. This implies that you will have to pay the loan for a longer period, but the monthly value will reduce. Even though the interest will remain the same and value higher in sum, you can go for this if you are unable to service the loan at the current installment value. 

Fixed Interest Rates over Variable 

In general conditions, a fixed rate of interest is lower than a variable one. The difference may not seem significant in numerical terms. However, it can save you a sizeable amount of money when viewed in the longer run. A difference of even a few decimals can make a big impact on your finances. 

Consolidate Your Debts into Home Loans

Another viable option to service home loans is to merge all your other debts like credit card dues and other personal loans. With this, you will be able to free up your monthly earnings by not paying high amounts in loan repayments. 

A possible drawback of this method, however, is that you may have to pay the mortgage insurance to the lenders if the consolidated debt exceeds 80% value of your home equity. 

Extension of the Deferral Period

After the first phase of the repayment pause ends, banks will communicate with their home loan customers about repayments. If your financial situation does not allow you to get started with the repayment schedule, then the banks will offer you an extension in the deferral period. 

This is like the last resort and applicable only for those who genuinely need extra time to settle their finances. 

Final Words

A mortgage repayment holiday is a relief feature offered to homeowners in the COVID19 crisis. With the end of the deferral period, there is a question of how to deal with the repayments if you are still facing the crunch. The options listed above are some feasible means to deal with a situation wherein you are unable to service the loans after the deferral period ends.