Financially troubled mortgage holders who are temporarily pressing their loans with higher interest rates from their banks could be hurt if they demand more help due to the coronavirus pandemic.
Homebuyers who are unable to resume regular payments beyond the loan deferral deadline at the end of September may have to choose higher-interest loan products to avoid the possibility of losing their holdings while money tightens.
Banks are offering mortgage holders who are still feeling the financial pain of COVID-19 the option to switch to interest-only payments.
Commonwealth Bank, Westpac and NAB, all confirmed interest rates will be higher than what would be offered if the customer stays on principle plus interest repayment payments.
The move raised concerns from RateCity Research Director Sally Tindall, who says banks should not raise interest rates for people who claim to be in financial difficulty due to the pandemic.
“Some of these people, without their guilt, have been stripped of their source of livelihood,” she said.
These customers should receive a price reduction, not a price increase. Asking people to pay more interest when they are in financial difficulty does not seem fair or reasonable. “
Across the major banks, the base and variable interest rates are around 2.7 to 2.8 percent, while the interest-only repayment payments are around 3.3 percent.
Tindall said that moving to interest rate only might be a good short-term measure for those who do so strictly, but banks should help clients where possible to reduce the interest burden on them.
“ASIC has advised banks to be fair and flexible in their negotiations, and to help people stay home if that is in their interest,” she said.
“They need real help from the banks, not a bigger interest bill.”
According to RateCity Research, a $ 400,000 mortgage holder who has chosen to move to interest only after the six-month deferment period will pay an additional $ 13,729 over the life of a 25-year loan.
The Australian Banking Association confirmed that an additional four-month deferral may be granted upon request.
Based on the same loan, a customer owing $ 400,000 who took an additional four months would only have to pay an additional $ 10,418.
The CBA says that clients are informed about the increase in interest payable when they contact the bank to transfer their loan to interest only.
Westpac says it will look at further dilution on a case-by-case basis, but the actual rate will depend on the specific product, the purpose of the borrowing and the loan-to-original ratio.
NAB says its pricing will be in line with interest-only products.
ANZ was contacted for comment.