As most of us are impacted by the effects of the current State of Emergency lockdown in the wake of the COVID-19 pandemic, be it physically, emotionally or financially, it is becoming increasingly important for anyone with a mortgage to understand whether their current loan is the best solution to meet any potential change in circumstances. Borrowers need to know how much their current loan is costing them, and how will their current lender support them in times of financial crisis. Is your Home Loan healthy enough to help you through this pandemic?
Workers in most industries have been severely affected by the restrictions put in place to prevent the spread of coronavirus . In response to this most lenders have programs designed to assist clients financially should their employment/income be impacted negatively. As at June 30th the data provided by Home Finance lenders showed that around 10% of Home and Investment loans were under a repayment deferral program, representing around $195 billion in loans. Small business had also taken up the offer of repayment deferrals on commercial loans at around 17% of the total small business loan market.
The assistance package generally consisted of repayment deferrals for periods initially up to six months, however a large percentage of those loans under the repayment deferral program will be coming to the end of this period. Some lenders have commenced reviewing the requirements of those who took up the deferral option in the first wave of restrictions. Most lenders have advised that, for those who still require assistance, there will be options available to extend the deferral period, however these will be subject to regular review and arrangements will be for shorter periods.
There is also a misconception amongst some borrowers that, with repayments put on hold, any other costs will also be deferred. This is not the case. If you decide to defer your loan repayments the interest on the loan is still being calculated and is added to the loan balance. Once the deferral period is completed, borrowers could find themselves in a worse position as they owe more than they did before the deferral period commenced. They may have to commit to a higher loan repayment than they were paying before the repayment deferral period commenced.
If you are a borrower who is about to finish the initial repayment deferral period, or due to lockdown need to approach your lender for repayment deferral assistance, there are ways to mitigate the impact of this, now and in the future.
- Review the current interest rate and approach your lender to switch to a cheaper option before you request the repayment deferral. This will help to reduce the amount of interest that would be capitalised to your loan during any repayment deferral period.
- Re-commence your repayments as soon as possible to reduce the additional interest costs if you can afford to do so. Even setting up a part-payment arrangement with your lender will help to offset some of the extra interest which will be charged during the deferral period.
- Refinance to another lender should you still be employed. A number of lenders offer discounted rates to new customers, and these can be significantly cheaper than rates offered to existing borrowers. Some lenders will take JobKeeper into account as acceptable income to repay a Home Loan, so even though you are receiving some assistance you may still be eligible to borrow to refinance and get into a better position.
A mortgage broker can help borrowers navigate the way through the options to ensure they get the best outcome under the circumstances. At SHL Finance we are already proactively helping our clients negotiate a better rate with their current lender, reviewing their existing loans and discussing ways to potentially save their clients thousands of dollars. We would love the opportunity to help you too.
Please call Reece Droscher on 0478 021 757 should you want to discuss your options.