March 25th, the government announced banks can provide a 6 month mortgage holiday for homeowners, and small business owners who have mortgaged their houses to fund their business.Is this a good idea? Sounds pretty good doesn’t it? No payments for 6 months at a time where things could be very stressful.For some people, this will be a lifesaver. But before you decide weather its for you, you should work through the details, especially if your income is majority the same as before.
Know this, it is a payment deferral only. This means it just pushes things back by six months. While you are not paying, interest will be accruing on the remaining balance of your mortgage. This mortgage holiday will cost you when you come out of it, the interest never stops.
In our opinion this should be an absolute last resort as it is essentially a form of “arranged” arrears. It may provide immediate relief for your cashflow, however could also affect your credit report and potential future borrowing.
If your income is majority as before, then there are other options for you…
- Interest only. Most banks may approve a certain time frame of owner-occupied property owners to go onto an interest only period (typically 3-6 months). This means your loan balance will continue to stay the same as you are no longer paying principal payments, however you will keep on top of your interest payments.
- Repayment Reduction. Many clients are paying more than the minimum requirements of their loan payments. Contact your bank directly to reduce these payments if you are paying above minimum and need the relief.
- Redraw of Revolving Credit Facilities. Clients who have repaid more than minimum may be able to access their redraw facility. Note, you’ll need to break your loan to access this or wait until your fixed rate is up for renewal. If you have a Revolving Credit Facility, this will be on a floating rate and therefore break costs will not apply. This will help re-instate your cash funds when the times comes.
- And finally, instead of accessing redraw facilities or applying for mortgage holidays you can consider using your contingency funds/savings (if you have any).
We are here to help our clients and get them through by working side-by-side and tailoring solutions that will best meet their financial needs now, and in the future.
Talk your circumstances over with our professionals – mortgage brokers and our registered financial advisers, to find out what solution will be best suited for you.
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