As most of us are impacted by the effects of social distancing 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 the hospitality, entertainment, tourism and retail industries have been severely affected by the restrictions put in place to prevent the spread of coronavirus . In response to this most lenders have announced programs designed to assist clients financially should their employment/income be impacted negatively.
The assistance package generally consists of repayment deferrals for periods of up to six months, but there is a misconception amongst 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 being 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.
Should a borrower need to consider their lender’s assistance package 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. This will help to reduce the amount of interest that would be capitalised to your loan during any repayment 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.
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.