Many businesses and services have already been forced to close under the latest Federal Government restrictions to try to curb the spread of Coronavirus and many Australians are already feeling the pinch when it comes to finances. Especially those with a mortgage.
At least 1 million Australians are facing unemployment as a result of the crisis. And although the Australian Government has acted quickly to support many of those who have been affected or to reduce the impact, fear and misinformation still surrounds our mortgage repayments.
We’ve put together a summary to help you understand what issues are currently being discussed and considered in regards to Australian lending.
Will mortgages be put on hold?
If you haven’t been impacted through job loss, loss of rent or severe economic hardship, limited actions will be available to you. If you have been impacted, you will be required to provide evidence of your change in circumstances. These requirements are put in place to prevent the exploitation of the situation. While the big four banks have all announced that their customers will be able to pause mortgage payments, some banks explicitly state only customers affected by Coronavirus will be eligible to pause their repayments. And whether you need to provide proof (such as a doctor’s note) to verify you have been affected by Coronavirus depends on which bank you’re with.
Help for those already impacted
Most banks are now willing to consider changes to your current lending if you have been impacted by the economic consequences of the Coronavirus pandemic. To qualify, you will need to either:
- Have been diagnosed with Covid-19
- Lost your employment or income significantly reduced
- Your rent on your investment property is not being paid
If any of those points relate to you, some banks are willing to:
- Allow up to six months deferred repayment on your loan. During this period, interest will still be charged and accrued.
- Extend your loan term for that period. Alternatively you can pay the backlog during the existing term through higher repayments once it recommences.
- Take a deferred mortgage repayment that will not affect your credit rating.
While being able to defer payments may be the best option for you at the moment, you need to consider the cost. All of the big banks have announced interest capitalisation which means the interest that you don’t pay during your period of deferral is added to your outstanding loan balance. For example, if you currently have a $400,000 home loan at an interest rate of 3 per cent, you would be paying $1,000 a month in interest. If you pause your home loan repayments for six months, the interest amount is added to your outstanding balance and in six months’ time, you’ll be looking at paying off a $406,000 loan.
For those who aren’t impacted
Even if you’re not directly impacted by the Coronavirus pandemic, banks are still looking at their options for existing clients. They’re currently assessing whether or not to pass on the recent official interest rate cuts for investor loans.
There are also some special fixed rates now available for owner-occupiers where banks have passed on the recent reductions by up to 0.7%pa.
Banks are expected to make further announcements as changes continue to affect Australians daily. In the meantime, we recommend reviewing your loan as some banks are offering higher discounts on variable interest rates.
What about new loans?
Despite the current health environment, banks are still willing to lend money for new purchases and refinances. Some restrictions may apply to employment in certain industries that are directly impacted by Coronavirus such as travel and tourism.