While leading lenders are offering a repayment holiday to borrowers caught in financial strife, one expert shares some alternate avenues to help ease the pressure.
The industry has manoeuvred through a myriad of stages since the onset of COVID-19. As swiftly as the pandemic had enveloped household finances – leaving many borrower’s incomes compromised overnight – leading lenders had introduced relief packages to assist borrowers in sustaining their home loan repayments in their hour of need.
While this comes as a welcome measure by ultimately allowing a borrower to delay their monthly repayment for three months, and in some instances six months, generally, if your loan term isn’t extended also, then your deferred repayments including the interest could impact your total loan balance.
Senior finance consultant at Orium Finance, Luke Heavey, says, “Keep in mind that any pause in repayments will end up being capitalised into the rest of the loan term but this can ease the financial burden of the repayments when you need it [the] most.”
In this case, Heavey advises borrowers to meet with a qualified and professional mortgage broker to explore the options that are available to them and how a repayment holiday would shape their loan.
“With growing economic uncertainty as a result of the coronavirus, many of us may be wondering how we will meet our mortgage repayments should our incomes be affected,” Heavey says.
“The good news is there are avenues in place to minimise or even delay mortgage repayments, which provides a safety net should your income be disrupted.”
Heavey shares three other ways in which you can potentially reduce your repayments and relieve some of the pressure of servicing your home loan during these disrupted times.
1. Check that your loan still has a competitive interest rate
The downward pull of the property market last year saw the slashing of the interest rate to a historic low.
But just as buyers, particularly first-timers, had thought that they were entering a home loan on the most advantageous playfield, the mounting threat of COVID-19 over the industry and the broader economy saw the RBA cut the cash rate even further to 0.25% in March.
“With record low interest rates, there’s a good chance that a better rate is up for grabs,” Heavey notes. “Talk to your mortgage broker about refinancing your mortgage to ensure it is costing you as little as possible.”
A mortgage broker can also direct you in the instance that refinancing your home loan is not a possibility for you at this moment in time; considering that some lenders have started to show signs of tightening their credit policies to minimise the occurrence of borrowers having to default on their loan.
Nevertheless, there’s also the option of seeking advice as to how you can reduce your monthly repayment by re-moulding your current loan term.
“To reduce your repayment amount, extend your loan term to 30 years and move to minimum repayments to reduce your monthly financial burden,” Heavey proposes.
2. Focus on paying down only a portion of your loan
“One way to reduce the monthly financial burden of your mortgage is to move to an interest only loan,” Heavey says.
A mortgage broker will be able to inform you on whether you can qualify for this, even if it’s for a few weeks or months.
Heavey shares, “As an added benefit, if the mortgage is for an investment property you can deduct the interest, making an interest only loan more desirable.”
3. Tap into the available equity in your home
The current situation will require you to re-assess your household budget, but while drawing equity out of your home is usually done for the means of accessing a deposit for your next property purchase, the ‘normal’ applies less in the midst of COVID-19.
Heavey says that having equity within your property may give you “access to a cash buffer” if you are able to refinance.
“Equity is the market value of your property minus what you owe on your existing home loan,” he explains.
Another option is finding out whether you are eligible to redraw from your home loan.
“If your loan has a redraw facility you may be able to access any additional repayments you’ve made on your home loan that are over and above the minimum payments,” Heavey says.
With a number of potential avenues available to borrowers in navigating through these uncertain times, a qualified and professional mortgage broker can structure a mortgage repayment plan that best suits your financial situation and long-term goals, as well as discuss the options that are available with your existing lender.