Are you impacted financially by COVID-19?
Let’s face it amidst COVID-19, talking about finances doesn’t spark an exciting response – unless you’re a mortgage broker. At Loanport we are committed to taking some of the pressure off by giving you options to better navigate the world we are experiencing right now.
So far, the response to COVID-19 and home loan repayments from the major lenders and most of the smaller lenders has been good.
Most lenders have set up a simple system online to apply for a “pause” on home loan repayments. Most lenders will want evidence that the customer has been financially impacted through unemployment, reduction of hours or a decline in business.
The plans vary with each lender, but the most common points are:
- A stop on loan repayments for 3 – 6 months.
- Interest will accrue and be added to the loan balance each month. For example, a loan of $400,000 at a 3% interest rate in 6 months will have a balance of $406,037.
- Some lenders will adjust the loan term according to the “pause” period, others will recalculate the repayment over the remaining loan term. For example, of a $400,000 loan with a 20-year loan term at 3% monthly repayment is $2218 per month. With interest capitalised for 6 months and no change to the loan term the repayment will be $2300 per month (over 19.5 years).
Most lenders have indicated that offset accounts and existing interest rates will continue to be in place and that a “pause” on repayments won’t affect customers credit files. However, we are yet to see this with most lenders now engaged in positive credit reporting.
Our first tip is for those who have been financially impacted consider what is the best option to maintain cashflow within your households. The second tip is don’t wait until you are in arrears on your home loan. In most cases the “pause” option is not available to customers who are already behind in their home loan repayments. And finally, if there is money in your redraw, take it out before your start the “pause” as it will be absorbed with interest capitalising on your home loan and reduce what you have available.
If you have not been financially impacted yet or who don’t want to take a “pause” on your repayments other options may include:
- Request a repayment holiday and use funds in your redraw to cover loan repayments.
- Reduce your repayments to the minimum.
- Extend your loan term to reduce your repayments.
- Change to interest only payments for a short period.
- Change your home loan product to get a lower interest rate.
- Ask the lender for an interest rate reduction.
- Consider refinancing to another lender.
These are “options” not recommendations. A Mortgage Broker will guide you through these and assist you to work out the most suitable option for your personal situation.
Written by Diana McKenzie
Director – Mortgage Broker
Loanport Pty Ltd