Experts can offer other options for alleviating financial pressure. Leading lenders may offer a repayment vacation to borrowers in financial difficulty.
The industry has seen many changes since its inception. 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.”
Heavey recommends that borrowers meet with professional mortgage brokers to learn more about the options available and how repayment periods would affect 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 also outlines three other ways to reduce your monthly payment and lessen the burden of servicing your loan in these difficult times.
1. Find a loan with a competitive interest rate
Because of the market’s decline the interest rates were lowered to an all time low last year.
Buyers, particularly first-timers, believed they were getting the best home mortgage terms. COVID-19, the increasing threat to the economy, saw the RBA cut the cash rate by 0.2% 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.”
If refinancing a loan home is impossible, a mortgage broker may be able to assist you.
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. You can only pay a small amount of your loan off
“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. You can make a profit from your equity in your house
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.
Find out if your loan is eligible for a redraw.
“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.
To navigate these uncertain times, there are many options available to borrowers. A professional mortgage broker can help design a mortgage payment plan that is tailored to your financial situation and long term goals. Also, they will discuss with you the available options.