Extraordinary times aren’t they!

The banks have been slowly announcing what their support packages will be for home owners following the government’s announcement of mortgage holidays. Each bank is approaching it slightly differently but in general terms the following options are available to mortgage holders.  

If you are paying more than minimum fortnightly/monthly loan payments in order to clear your loan faster you could reduce these payments to the minimum possible under your current loan term. By loan term I mean the number of years it will currently take to fully repay your mortgage. Or, if you will finish repaying your mortgage in less than 30yrs, you could seek to extend your repayments out to 30yrs.

You can reduce your fortnightly/monthly payments by only paying the interest on the loan balance for the next 6 to 12 months (bank discretion). To work out what your payments would be is an easy calculation: take your loan balance and multiply it by the interest rate and divide the answer by either 12 (monthly) or 26 (fortnightly) to get the payment amount.

EG: a mortgage of $500,000 x 3.05% = $15,250 pa. Which equals $1,270.83 per month of $586.53 per fortnight. Once you come out of the interest only period, your loan repayments will increase because you will now need to repay the mortgage over a shorter period of time (eg: 1yr less).

This should be a last resort but don’t be overly concerned if you have to do this. The old saying “needs must” should be kept in mind which basically means if your situation means you can’t do anything else, then this what you have to do.

Banks are offering a 6 month deferral of both principal and interest OR in some cases just your interest costs (you would keep paying the principal amount). It will provide massive immediate relief, however your interest will still accrue and your repayments will increase immediately after the ‘holiday’. The interest that should have been paid each month is added to the loan on a monthly basis, so you will end up paying interest on interest as each month passes. Plus any deferred principal amounts will also be added to your loan balance. You will need to keep making loan repayments until any deferral is processed with your bank. Note, that this option is not available on revolving credit facilities.

If you need assistance or advice feel free to give me a call or email me.