In this time of economic instability, we know that jobs and mortgages are of the highest concern to you, the Government and the lenders. With things changing on a daily basis, we're perfectly positioned to help.
As the response and effects of COVID-19 on our health and economy continue to develop, we've all been forced to try and keep up with how our world is changing by the day.
Shutdowns, lockdowns and social distancing have had a huge impact on businesses and employment. It's no surprise that for many, the fear for our financial health is as big a concern as our physical well-being.
A mortgage is the single biggest financial obligation for most Australians. How we can manage our loan repayments during the crisis is vital to how we can get through this.
Since March, the Federal and State Governments have been releasing billions of dollars in assistance and stimulus packages, as well as changing some rules and regulations to support people and businesses.
The lenders have also been actively supporting both business and personal customers by reducing and freezing repayment obligations and changing interest rates, fees and terms, among other things.
And as all these continue to change, the good news is one thing hasn't – Kelly+Partners is here, keeping up to speed with all these changes and dealing with the lenders on a day-to-day basis.
So, if your income has dropped, we can help take you through your options (even now you do have some). Here are a few things to think about.
Should you freeze your mortgage?
For many, the chance to pause payments on the home loan for a few months is a welcome short-term relief, taking the pressure off cash flow and savings. But this may not be the right thing for you. The payments you miss will increase your debt in the long-term. It's important to think carefully before making any decision and consider all your choices. There are several other things you can do instead of pausing your mortgage.
Firstly, you can keep paying your mortgage. Don't get lured in by the ability to pause just because it's there. If it's possible to keep up with payments, then you'll be reducing future repayments and interest.
You can minimise your payments. You may have room to move on what you're paying, or you can negotiate with your lender about going interest-only, and maybe reducing your interest rate. We can help you with that.
If you're also getting slugged with high-interest rates on credit card repayments, you can consolidate your debt into your home loan which has lower rates over the longer-term. If you do decide to do this it is very important to understand that it could end up costing you more in interest if you repay the additional balance over the full 25 or 30 year home loan term.
Some of you will have been saving for a rainy day. It is worth pointing out that we're in a massive storm with huge downpours right now. Maybe this is that day you've built up a buffer for? You could choose to use some of your savings on your mortgage.
There are other features in loan products that can help. A redraw facility lets you withdraw any extra payments you've made into your loan. An offset account, which any salary or payments can be made into, uses its balance to reduce the balance of your home loan. This in turn reduces the interest you're paying off. It is important to understand the difference between the two options. With a redraw facility you are drawing back the amount that you are ahead of the scheduled loan repayments and this may require the lender's approval. An offset account operates in much the same way as a normal deposit account and the funds are yours to withdraw at any time.
Fixing your interest rate is another way you can reduce your payments. Interest rates are at an historic low and lenders are trying to assist customers where they can. One way some are doing this is by dropping their rates on short-term one or two-year fixed loans.
Is now a good time to refinance?
That's a tricky one. With people losing jobs and income, businesses closing or 'hibernating', and the economy going in the wrong direction, there is a lot of uncertainty out there and that equates to risk for lenders.
The first thing to do right now may be to go to your current lender and ask for a better deal. At the moment, many clients are getting better rates just by asking.
And that's one of the most important services we can provide you with. We work for you, not the lenders. We can go into bat for you and negotiate on your behalf to get a better rate or terms for you. Because we deal with the lenders every day, we know what they can offer. Now, more than ever, it pays to have us in your corner.
What about a new home loan?
If your income has dropped significantly, you'll have trouble borrowing what you could before this crisis. What's more, we've noticed lenders are understandably taking a more conservative approach to new applications.
Having said that, your situation and needs are unique to you and we know what different lenders are looking for. You may still have good options, and with an expected drop or flattening in real estate prices, you may not have to borrow as much as before.
If your income is still good and your business or industry looks to be strong throughout the coming months then there could be some opportunities for you out there. Lenders will still be looking for good, lower-risk customers. This, coupled with low-interest rates, lower real estate values and borrower-friendly conditions on many loans, could put you in a position to take advantage of a very unique set of circumstances.
So, what's right for you?
Everyone's circumstances are different, and this crisis has affected each one of us in different ways. It may not feel like it, but there are likely options available to you right now. We can work with you to understand your circumstances and marry up your situation to the help being provided by lenders and governments.
With so much uncertainty right now, it's our job to stay up to date with what's happening in home loan lending and provide you with guidance to get through. When this is all over, we all want to be in the best position possible to bounce back.
At Kelly+Partners, we like to start with a good chat so we can go through options available to you. While we would normally meet you somewhere convenient for you, under the current circumstance we can setup a virtual face-to-face catchup via a videocall or over the phone. And as always, at a time that suits you.
For a review, please contact:
Any advice/information contained in this newsletter is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person or company. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters. These articles have been written for general informational purposes only, and are not intended to provide, and should not be relied on for, tax, legal or accounting advice. We encourage you to consult your own tax, legal and accounting advisers before engaging in any transaction. Information in this edition is correct as of the date of publication and is subject to change.
Credit services are provided by Kelly Partners Finance Pty Ltd as an authorised Credit Representative under Australian Credit Licence 38908