If you have a home loan, or investment loan, you are probably wondering how COVID -19 impact on your banking and loans.
What's going to happen if you lose your job and your income?
What are the banks going to do if your tenant doesn't pay their rent?
We're living in interesting times aren't we?
If history has taught us anything, it’s that the only constant in life is change.
Over the course of the last century alone there have been a litany of challenges and numerous disasters, all of which have one thing in common – they’ve all passed.
Some months from now – it’s impossible to predict the true timeline are you six months it could be a year or more but it’s sometime in the future, the current situation we face with Covid-19 will also have passed.
As with the bush fires, it will have left in its wake a trail of debris and destruction which we ought not take lightly, but it will pass.
As property investors, another area of constant change seems to be the world of finance, banking and lending
Watch today's MASTERCLASS as I ask Andrew Mirams some of the common questions that we are being asked about finance in these challenging times, including:
Are the banks still open for business?
Yes they are.
The banks have been given a lifeline… $90 billion has been provided to the banks to go out there and lend money and stimulate the economy and at a very cheap interest rate.
It's been difficult for many investors to borrow recently, considering the tighter credit policies for responsible lending, but now APRA and ASIC – the bank regulators - are taking a common sense approach in these uncertain times, and our banks tare lending more freely in the short term.
What options are available if you run into financial difficulty?
- Use your offset account or a redraw facility.
We always recommend that our clients have an offset accounts as a financial buffer to see them through difficult times just like this so many will have funds available to redraw to see them through
2. Reduce your repayments.
If you are paying more than the minimum required repayment on your mortgage, as many people are since they’ve kept up the same repayments as interest rates drop, you can reduce the repayment to the minimum repayment anytime without charge with your lender.
The majority of lenders allow you to do this online.
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- Also read:Why I’m not worried about inflation — and why you shouldn’t be either
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- Also read:Where should I buy my next investment property in Australia?
If you choose minimum repayment, be careful to ensure you don’t have excess redraw in your loan account, as this can make the new repayment based on your outstanding balance – causing the redraw to be locked or removed entirely – simple fix, if you have an offset account, you can place the redraw funds into this account.
- Repayment holidays or payment pauses
You need to understand that these aren't the lenders waiving your repayments or obligations but simply deferring them.
For example, if you take a 6 month payment pause on your loan, then the interest still is charged and capitalised (or added) to your loan.
At the end of this period, then you will then be required to make your normal repayments, PLUS catch up those that you haven't made over this time. It's important to understand this.
You will be asked still if you are under some hardship based on the Virus. i.e. have you lost your job or been affected in any other way.
It's not just a pause that anyone or everyone can take.
You will be recommended to redraw your loan first if you've made extra repayments or use your cash/offset or buffer before going into these measures.
Should you consider the current low fixed rate offerings by the banks?
Be wary before entering any of these as by accepting a fixed rate, you also accept those terms and changes cannot be made to your loans.
- You cannot have an offset account linked to the fixed rate and this can be very costly to many people with cash balances.
- Paused repayments are for "Owner Occupier" loans and not investment loans at this stage.
- If you have a fixed rate now? Then any changes to terms of payment holidays could incur break costs.
- Rate cuts announced for home, investment and small business loans. Don't be complacent now please, you still need to check these and advise us of any changes. There are some great offers available and refinancing might just give you the opportunity to see this crisis through.
- Don't make a short term decision that could have long term repercussions.
At the end of the day, all banks and lenders are here to help all Australians through this, but it's important for people to understand the consequences of the actions they take now.
Will this affect your credit rating?
No, asking to pause or postpone your interest payments at present will not affect your long-term credit rating as it normally would do.
The banks understand the unusual circumstances we are all experiencing.
Here's some other things that you can do:-
- Don't make quick or irrational decisions. These are testing times but keeping your calm right now will assist you most.
- Right now, don't fix your interest rate. Andrew is saying don't in the future but let's just get through the uncertainty first.
- Many people are paying additional repayments to their loan(s). If you wish to reduce these, the process to do so is quite simple and with most lenders, can even be done via your internet banking. This can/will help with your cash flow needs.
- If you need extra cash and have redraw available, use it! That's why it's there.
- Use your buffers - again this is why you have them, to see you through in extraordinary times.
- Match your repayments to your pay. i.e. if you get paid weekly or fortnightly, change your loan repayments to the day after payday as this can assist you manage your cash flow better.
If you’re in a good financial position, have a sound job this is a great time to take advantage of the property markets.
Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on
If you're wondering what will happen to property in 2020–2021 you are not alone.
You can trust the team at Metropole to provide you with direction, guidance and results.
In challenging times like we are currently experiencing you need an advisor who takes a holistic approach to your wealth creation and that's what you exactly what you get from the multi award winning team at Metropole.
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- Strategic property advice. - Allow us to build a Strategic Property Plan for you and your family. Planning is bringing the future into the present so you can do something about it now! This will give you direction, results and more certainty. Click here to learn more
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