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Hardship Variations

February 3, 2024

Encouraging news during the week on inflation which has significantly slowed in the last few months, with consumer prices rising only 0.6% in the December quarter and 4.1% over the year.

This is the smallest quarterly increase since March 2021, and annual inflation has dropped from its peak of 7.8% a year ago.

As a result, the RBA will almost certainly keep interest rates steady when it meets again next week. Financial markets are currently pricing in at least one rate cut by August and at least two by year-end, so there is very real light at the end of the tunnel for mortgage holders.

Perhaps in anticipation of rates easing, Macquarie is the first of the big banks to drop their variable interest rate, lowering it 0.20% earlier in the week.

In this week’s newsletter, we take a look at the difference between a loan with an offset account compared to a loan with a redraw facility.

For mortgage holders, losing a job can be extremely stressful, particularly if it means that the borrower will not be able to make repayments on their home loan. One safety not of sorts exist, in the form of a ‘hardship variation’.

What is a hardship variation

A hardship variation is a temporary arrangement with the lender while you get back on your feet. Hardship variations are short-term help in the hope that you can return to normal repayments after a few months, or pay out the loan within a reasonable time.

Variation options include –

  • Postponement or reduction of repayments for a few months.
  • Reduction or freeze of the interest rate for a few months.
  • Extension to the term of the loan. This adds the missed payments (called ‘arrears’) to the end of the loan, so you don’t need to catch up straight away.
  • Waiving of default fees or other penalty fees.
  • Give time to sell an asset to repay the loan.
  • The lender does not have to say ‘yes’ to the request for a hardship variation, but if they say ‘no’, you may have options to challenge it.

Impact on credit report

Getting a hardship variation will not fix any late payments that have already been reported to the consumer credit reporting agency, before you contacted the lender about hardship. These late payments will remain on your credit report for 2 years from the time of listing.

The role of a broker

Whilst we as brokers cannot apply for a hardship variation on behalf of our clients, we do walk clients through the process and assist them with their hardship application. We can also reevaluate your circumstances for longer-term solutions.

Variable

The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.

1 Year Fixed

The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.

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