Our Mortgage Brokers are here to help you understand your home finance options whilst we all do our part to battle the Coronavirus pandemic. Seek our advice before taking a loan repayment holiday, it could save you in the long term.

Posted in: Insights

03/04/2020

The Coronavirus pandemic has, for many of us, turned our world upside down.  The speed and ferocity of the social and economic impacts to our society and normal way of life have been breathtaking and brutal.

Job losses, stand downs and business failures, have and will impact many of us.  For those not already impacted, the future still remains uncertain. Working from home will become the new normal for many of us while the threat remains.

Regardless of whether you have lost your job, you’re working from home, or you’re just feeling nervous about your future, it’s likely you are thinking about your finances, both short term and long term.   If you have a home loan, that’s likely to be the largest of your debts and therefore the largest burden on your day to day living expenses, so it makes sense to see if anything can be done to reduce that burden and free up some cash to help with day to day expenses.There are several things you can do right now to help free up some of that cashflow, starting with jumping online, logging into your internet banking and checking the interest rate on your home loan.   If it starts with a 5, a 4 or even in the high 3’s then there is a good chance that rate can be reduced, thereby reducing the required repayments on your loan and saving a potential bucket load of cash over the term of the loan.

If you are currently paying more than the minimum, maybe consider reducing your repayment to the required minimum for a period of time to help build some cash buffers, for just in case.

The Banks have all announced offers of repayment holidays for those who are struggling and meet certain criteria.  However before taking up that offer it pays to be well informed as there are potential longer term negative consequences. Let’s say for example you have just taken out a $300,000 loan at an interest rate of 4.00% (with the same comparison rate) over a 30 year loan term.   Let’s also assume the interest rate didn’t change for the term of the loan.  If you just made the minimum monthly repayment of around $1,430 you could end up repaying the original $300,000 plus an additional $215,6000 in interest charges, a grand total of $515,600.

Now, let's say you take up the offer of a six month repayment holiday and don’t make any of the first six monthly repayments on the loan.   At the end of the six months you then revert to paying the minimum repayment of around $1,430.   The impact of this over the course of the remaining term of the loan is that you could end up paying a total interest charge of just over $235,200, plus in addition you will still have a remaining balance on the loan of approximately $28,100 which you will need to repay in a lump sum or refinance to a further loan. 

The net result is that repayment holiday for six months which saved you approximately $8,600 in repayments could end up costing you approximately $50,000, made up of the extra interest charges and remaining balance at the end of the 30 year term.

In all of these scenario’s it pays to speak with an expert who can help guide you towards the best option to suit your circumstances.   A Bernie Lewis Home Loans Broker has all of the latest information from Lenders at their fingertips and can quickly determine which option may give you the best outcome.

Call us on 8300 8300 to speak with a Broker today and start getting your finances sorted.