Some people have lost their jobs. Some have had their businesses shut down. Others have had their wages reduced. If you are financially impacted by COVID-19, we have created this article and accompanying video to walk you through the options put together by the different lenders.
Is Coronavirus Impacting Your Ability To Pay Your Mortgage?
Almost all bank’s home pages now have a link which will take you to their financial assistance policies if you are impacted by coronavirus. This article will walk you through the main options you have, along with the pros and cons of each option.
1. Reduce Your Repayment To The Minimum Repayment Amount
You can pay the minimum repayment amount instead of your current repayment amount. If cash flow is tight, this might give you some short term cash without any medium to long term penalties.
2. Access Your Redraw Or Offset Account Balance
If you need cash flow in the next while, you can access your redraw or offset. These are effectively your savings accounts attached to your home loan. You can draw funds from these accounts but your repayment will go up.
3. Change Your Repayment Type
You can switch your repayments from Principal and Interest to Interest Only to reduce your repayment. You can switch back to P&I once this crisis blows over.
Depending on the bank, this may count as a new loan application.
4. Change Your Home Loan Product
Here you can go from Variable to Fixed Rate loan. There are some attractive fixed rate offers out there, which are currently lower than the variable rates. However, before fixing your rates, please talk to us to make sure this option is suitable for you.
Please keep in mind that there are BREAK COSTS that you will have to pay IF you decide to break a fixed-rate loan before it expires.
5. Refinance And Consolidate Other Debts
There are some excellent Refinance Rebates out there at present. For example, ANZ and NAB are both offering $4,000 rebates for new customers. CBA is similarly offering a $2,000 rebate for new customers, St George and Westpac are offering a $2,000 rebates for every property you refinance across to them.
These specials are all running for a limited time only and as always, Terms and Conditions apply.
6. Check Your Landlord Insurance
If you are a landlord and you lose your tenant or your tenant is asking for a rent reduction, please check your Landlord Insurance. You may be covered for this scenario.
7. Pause Your Repayment
If you’re experiencing financial difficulty due to COVID-19, you may be able to put your home loan repayments on hold for up to six months, with interest capitalised. More on this below.
If you pause your repayments, the bank will generally check in with you after three months. And while this will give you the most relief, you need to understand what the implications are.
As COVID-19 may impact your ability to repay your home loan in a variety of ways, once you have requested assistance, the bank will contact you and ask a few questions to better understand your situation and whether you are eligible. This is all done on a case by case basis.
If you are eligible, your bank will put the repayments on your home loan on hold for a period of 6 months (with a review at 3 months). This means that you’re not required to make any repayments on your home loan during the assistance period.
Please note that during the assistance period, interest will continue to be charged on your home loan. And given you are not paying this interest in your repayment, the unpaid interest will be added to the total loan amount that you owe.
You have two options to catch up on the repayments that were paused:
A. You can extend your loan term by a period equal to the duration of the assistance provided (the time your repayments were on hold) and your new repayments will be adjusted accordingly. Please note that not all banks are offering a loan term extension, or
B. You can keep your original loan term (example 25 years) and the repayments will be adjusted to ensure you pay the loan off over the original loan term. If you choose this option, your repayments will increase.