Australia’s major banks have put up their hands to offer support to customers affected by recent lockdowns across the country, with eligible home loan customers being offered the option of temporarily deferring their payments.

But is deferring home loan payments a good idea?

For households facing financial hardships during this difficult time, the ability to put a temporary pause on their mortgages will come as a welcome relief, however there are drawbacks to pausing a mortgage that are worth keeping in mind.

What are the ramifications of pausing your loan?

Pausing mortgage payments may help you in the short term, but they can end up being quite costly in the long run.

That’s because interest will still accrue on the principal amount of the loan during the deferral period, meaning the total amount of money you owe the bank will increase.

Your regular repayments will then also be increased when your lender recalculates how much you owe them when you return to making payments again.

In some cases your lender may use any available redraw to make your repayments, so if you think you’ll want access to this money you’ll need to consider this before pausing your repayments.

Another thing to note is that a payment break on your home loan may show up on your credit score.

Other options that will help you cut back on spending

If you’ve decided not to pause your mortgage but are looking at ways to trim your monthly bills then the below may be worth considering instead:

• Ask your lender if they can lower your rate – If you haven’t recently then you may want to talk to your lender about the possibility of dropping your interest rate, you might be surprised at what they can offer you.

• Switch lenders – Sometimes it pays to shop around. There are a lot of competitive home loan deals available at present and if you can find a cheaper loan it may help you cut your costs significantly.

• Access available funds – if you’re ahead on mortgage payments then you may have funds you can access through your redraw account or an offset transaction account.

• Switch to minimum payments – Check what your minimum repayments are. If you are paying more than you need to then you may be able to reduce the amount you’re currently paying.

• Ask to pay a reduced amount – Rather than stopping payments completely it might be worth asking about paying a reduced amount, of even interest only. This will have less of a long-term impact than paying nothing at all.

• Get professional financial advice – Everybody’s situation is different so for the best advice it’s best to talk to a professional who can help you make financial decisions that will work for you both now and in the future.