LOAN/ MORTGAGE OPTIONS COVID-19
What are your options for managing your loan or mortgage during the COVID-19 outbreak?
RESTRUCTURE / RENEGOTIATE
Depending on when you last fixed your loans, you may be able to get a lower rate now. Look into what the bank’s break fee would be (break fees are deductible on rental properties); chat to your mortgage advisor if the bank isn’t playing ball. Or if they are being greedy at a difficult time.
You might also be able to push the loan term out e.g. from 25 years to 30 years. Yes it will cost you more interest but will improve cash flow now by lowering repayments. And see our tips here.
It’s not really a “holiday”, but rather a “payment deferral.” How does it work? While you don’t have to make payments during the mortgage holiday, you still get charged interest. What’s that going to cost? Well, it could be significant. If your loan is 500k, then it could add about 15k to it (assuming 4% interest p.a.). If you didn’t increase your repayments once the holiday is over, you’d pay about 35k more on your loan!
So, think carefully about this. One thing you can do is request the 6-monthly holiday, then if you don’t need all six months, end the holiday and renegotiate.
MORTGAGE HOLIDAY + VOLUNTARY REPAYMENTS
As above, but you keep making payments as you can afford them. This will give you some relief but reduce the interest on the loan. Or save money, and then whack it on the loan when you go back to work/cashflow returns to normal. Achieves a similar thing.
Instead of paying principal and interest, look at paying interest-only. There should be no break-fee for this at the moment. Just keep in mind that if property values drop, you could end up owing more than the property is worth. It has happened but is unlikely. You may be able to extend the term of your loan, which would lower repayments. Of course, you will pay more interest in the long-term, but it will help with immediate cash flow.
For an unemotional and independent opinion on your situation, please contact us.