Most options are expiring in September but what comes next?
The COVID-19 pandemic has caused devastating economic downturns across the globe, as entire economies shuttered to help slow the spread of the deadly virus. Here in Australia, the jobless rates surged to a 19-year high, with more than a million people losing their jobs. The official unemployment rate now sits at 7.5 per cent.
With the job loss so high, many Australian banks granted six months’ grace to customers struggling to pay their mortgages for their homes and businesses. Others announced different schemes aimed at helping lenders find relief during these unprecedented times.
Many of these options are expiring in September, leaving Australians concerned about what comes next. With the COVID-induced economic slump continuing, it is clear additional measures are necessary to help keep people in their homes and businesses.
There are five viable options for helping to wade through these tough economic times if mortgage relief is still an urgent need.
1. Accessing available redraw
Australians who have been paying a little extra here or there on their mortgages over the years may unknowingly be ahead on their mortgage repayments. Clients can check with their mortgage lender to verify how much they have in their redraw. If it is a decent amount, they can request drawing out those funds for repayments.
It is important to note that associated fees vary among lenders. There also may be minimum and maximum amounts that can be redrawn, so be sure to ask your lender if this is an option you can pursue.
2. Changing principal and interest repayments to interest-only
For a limited time, some banks are allowing borrowers affected by COVID-19 to change their repayments from principal and interest to interest-only. The downside to this is that it equates to a higher interest rate. Nevertheless, it reduces your monthly commitment, which can help with any temporary cash flow issues.
3. Negotiating a better variable rate
Some lenders may be willing to review variable rates and adjust them on request. Some lenders base this on your loan amount and how long you have been doing business with them. Our team of brokers can work with clients to make this kind of request on their behalf with their mortgage lender.
4. Fixing your interest rate
Fixed interest rates are at an all-time low. Since they are lower than variable interest rates, now is an ideal time for clients to consider fixing their interest rates. Adjustments can result in a better rate, lower repayment amount, or some flexibility around the rate for their fixed loan. Our brokers can discuss the pros and cons of fixing your interest rate to determine if this option is best for your individual needs.
5. Apply for a deferral of home loan repayments
The majority of big banks have given customers affected by COVID-19 the option to defer home loan repayments. These terms usually range between three and six months. If you are having cash flow issues, deferral can provide a temporary reprieve on mortgage payments. However, do note that interest is still charged and capitalised into the loan amount. Lenders may also extend the length of the loan by six months to compensate for the deferral.
While there are benefits to asking for a deferral, if not managed well, you could end up paying more interest in the long term. This option should therefore be reserved as a last resort. It is important to note that deferring loan repayments does not negatively impact your credit rating.
There are other options when it comes to managing a mortgage payment during these uncertain times, but these are the ones we recommend trying first. Our brokers are always available to discuss which option best suits your individual needs.
To discuss further, book an appointment with our Lending Specialists, Jayden Chen or contact us today on (03) 9835 8200 if you would like to discuss any points in this article further or should you wish to review your current loan interest rate/structure.