Worried about making your home loan repayments?
With the current changes, uncertainty, job losses and drops in revenue for many small businesses, there are many people worried about how they will make their mortgage repayments and other key payments over the next few months (or longer?).
Here are our tips to manage your mortgage repayments and financial stresses as much as you can.
1. Defer Your Mortgage Repayments (if necessary)
Australian banks and lenders are currently offering “Defer Mortgage Repayments / Repayment Relief Packages”.
How does it work?
For the length of the support period, no repayments are required. But it’s important to note that during this time, interests and charges will still be added to your loan balance. If you’re speaking to your bank about deferring your repayments, it’s important that you ask what charges and interest will be added.
At the end of the support period, your loan balance will be recalculated (with those charges and interest added) and your loan term will be extended.
If you have a $450,000 mortgage at 3.03% pa, your repayments would be approximately $1905 per month (based on today’s circumstances). If you took a six month relief package, your mortgage would increase by approximately $11,430 (because interest would be added and you’re not paying down the principal.) This would take your mortgage balance to $461,430 and would adjust your repayments to $1952 per month when the relief support ended. (This is calculated on a 30 year term Principal and Interest loan, and assumes no change in interest rate).
Warning: Comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.
Extra tip: If you do take up a relief package with your bank, I strongly recommend that you ask the bank representative to send you confirmation of the agreement in writing and that you keep it on file in case there are any queries or errors.
You can see details of the banks’ relief packages and their contact details here.
2. Access any additional money you have available in redraw in your eligible loan.
If you have made extra payments on your variable rate loan (over and above the minimum payments), you can usually redraw these funds as needed. Bear in mind that by redrawing those funds, the principal on which your interest rates are calculated will increase – so you will be charged more interest than if those funds had been left in place. But if cashflow is tight, this can provide some quick, accessible relief.
3. Consider if interest only repayments are right for you
With an interest only mortgage, your m minimum repayments will only cover the interest charges on your loan, which means the loan amount will not reduce during the time of the interest only repayments.
Interest only repayments are usually only available for a limited time, however can be negotiated in these exceptional circumstances.
4. Reduce your repayments to the minimum monthly repayment amount
If you have been paying extra, reduce your payment to the minimum monthly repayment amount.
5. Use the money in your offset account (if available to you)
Some banking customers have an offset account linked to their home loan. This is an account that you’re able to use a an everyday account – depositing and withdrawing money when you like – but it still counts towards the balance of your home loan when interest is calculated.
If you have an offset account, you can access that money without penalty. Again note that this will affect the interest charged on your home loan.
6. Investigate a reduction in your variable interest rate
If your mortgage is a few years old, your bank’s variable interest rate may have dropped since you set up the loan or your bank may be willing to negotiate a better rate to stay competitive. If you are still able to make repayments, but would like to access the lowest interest rate possible, you can negotiate a reduction in your variable interest rate with your bank. (Speak to us as we can also negotiate with the bank on your behalf).
7. Look to other cost savings to free up your cashflow
While your home loan is probably one of your biggest expenses, there are other cost savings you can investigate to reduce your monthly spending and free up some cash for the essentials.
Contact your utility companies and other companies you buy from and ask about possible payment plans if needed. With the larger companies, to avoid sitting on the phone I recommend visiting your provider’s website to see if they have relief options outlined, or specific contact numbers to discuss relief packages. It’s best to be on the front foot and contact them sooner rather than later, even if you aren’t yet feeling the pain.
The companies you could contact include:
- Power and gas
- Internet / Telephone provider
- Water Company
- Council (Rates)
- Landlord (especially business landlords)
- Schools / Sports Activities
You can also contact your Superannuation company to discuss insurance waivers if applicable (speak to our financial planning team for advice).
One other option is to switch to paying minimum repayments on your credit cards. But be aware that the interest rate on your credit card is significantly higher than your home loan, so you may end up paying significant interest on this debt.
If you have any questions, or would like further information on any of these tips, give us a call or schedule a free 15 minute chat. We’re here to support you in any way we can.