Refinancing vs. Payment Deferral

When faced with financial challenges, homeowners often explore refinancing or payment deferral options for their mortgage. This article highlights key points to consider when choosing between the two strategies.

1. Refinancing:

   • Lower interest rates: Refinancing can lead to long-term savings by securing a mortgage with a lower interest rate.
   • Debt consolidation: Homeowners can consolidate high-interest debts into a single mortgage payment with potentially lower interest rates.
   • Access to equity: Refinancing offers the opportunity to tap into home equity for funding other financial needs.
   • Consider costs: Closing costs, appraisal fees, and prepayment penalties should be weighed against potential savings.
   • Extend your loan term: Extending your loan term generally results in a lower monthly repayment, however the down side is that this often means paying more interest in the long run.

2. Payment Deferral:

   • Temporary relief: Payment deferral provides short-term financial relief by suspending mortgage payments during hardship.
   • Credit score preservation: Deferring payments can help to avoid late payments being reported on your credit file, however this is not always the case and is something you should find out directly from your financial institution.
   • Eligibility criteria: Understand the terms, conditions, and accrued interest during the deferral period.
   • Increased repayment or extended loan term: Deferring repayments often leads to a higher repayment at the end of the deferred period. Alternatively some lenders may allow you to extend your loan term so that the deferred repayments are added onto the end of the original loan term. Either way you sould consider the implications specifically in total interest cost and repayment.

3. Factors to Consider:

   • Financial goals: Determine whether long-term savings or temporary relief aligns with your objectives.
   • Financial situation: Assess stability and ability to resume payments for refinancing eligibility or short-term hardship for deferral.
   • Future plans: Consider homeownership plans and how each option fits your long-term strategy.
   • Professional advice: Seek guidance from mortgage professionals or financial advisors for personalized insights.
   • Manage cash flow trouble long before it becomes a problem: By seeking help with your cash flow well in advance of any inevitable missed loan repayments occur, your mortgage broker and/or your financial instituation will have access to more options for you and chances are, they’ll be able to help ease the pain a lot sooner.

Whichever way you decide to go, we’re here to give you advice on the options and help facilitate this with your bank. If you’re worried things are becoming tight, reach out to us and book in a chat with one of our residential or commercial mortgage advisors.

Luke Meisenhelter

With over 14 years in the finance industry Luke has helped countless clients achieve their finance goals. As the Managing director and founder of Loanright Financial services Luke now manages a team of experienced mortgage brokers with a combined total of more than 60 years finance experience in residential and commercial lending as well as business and asset finance. As a leader the finance industry Luke has become an innovator in the game, mentoring and coaching other industry professionals and pushing the limits on process driven workflow structures, systems, and accountabilities, aimed at providing the best possible financial outcomes for all clients in the shortest possible time frames. Throughout his years in the finance industry, Luke has become increasingly frustrated with the quality of information available to consumers in the property and finance market, most of which is biased and designed to capture leads by creating fear and offering a magic solution. It’s Luke’s goal to share his knowledge and provide free, non-biased, quality sources of information on finance and financial concepts to as many Australians as possible.