COVID-19: Mortgage And Business Loan Relief
The government’s stimulus activities will help put money back into the pockets of businesses and ordinary Australians. Here's what we know so far.
As you are no doubt aware, the PM recently announced a $189 billion stimulus package, noting: 'We want to help businesses keep going as best they can and for as long as they can, or to pause instead of winding up their business. We want to ensure that when this crisis has passed Australian businesses can bounce back'.
Taylors Strategic Partner, Dylan Salotti - Managing Director of Divitis Finance - shares what he knows so far on mortgage and business loan relief.
Mortgage Relief Is Here
The government’s stimulus activities will help put money back into the pockets of businesses and ordinary Australians. Although we are still waiting for specific details from banks and other financial institutions on their support to existing clients, here is what we know so far (and stay tuned for on-going updates):
Payment Deferrals
While lender details will vary, most are now rolling out loan repayment deferral programs.
For most lenders, this now falls under national disaster relief as opposed to a typical hardship scheme.
The key difference is your current credit score won’t be affected should you need to enter into a 3-6 month mortgage relief program.
We do note that If you have a loan outside of CBA, ANZ, NAB, Westpac, Macquarie, St George, Bendigo and Adelaide Bank, Suncorp, ME Bank, Heritage Bank or the Bank of Melbourne, we encourage you to check that the relief they offer won’t impact your credit score.
We suggest this as we are yet to hear official confirmation from those lenders regarding their position. This said, we anticipate all lenders will announce further detailed plans and instructions over the coming days.
Here is what we do know.
#1. Most lenders are offering 3-month mortgage relief with the ability to extend an additional 3-months if required. Requirements for deferral from the Big 4 is low, so just get in touch with your lender to discuss
#2. Please do be aware that as these new 'relief' departments are recent, so expect delays in getting through on their hotlines. As with the Centrelink issue, there may be slower turnaround times but be patient. If you can’t wait on the phone, some are offering a call back service.
#3. Depending on the lender, it’s also important you understand what their definition of 'defer' means: As an example, see below from CBA.
'Home loan customers requesting financial assistance during this time will be able to defer their repayments, with interest capitalised, for up to six months. For the duration of the support period no repayments are required. However, during this time, interest and charges will add to the loan balance. At the end of the support period, your required repayment amount will increase so you repay the total balance over the remaining loan term (including interest and charges added to the balance during the support period).'
What they are saying here is that the deferred payments will be added to your loan balance on the remaining term which means your repayments will increase after the deferral period until the end of your loan.
#4. When requesting this assistance, we strongly advise seeking clarity with the lender if the deferred amount is:
a) Added to the current remaining loan term, which will result in higher repayments following the deferred period (i.e. 6 months)
b) Paid as a lump sum at the end of the deferred period so there is no repayment increase
c) Added over an extended-term so there is no change in repayment, but you pay the loan for longer
If one of these is more favourable for your situation, we encourage you to ask for this when requesting a deferral.
#5. Below are websites to find lender specific information.
ANZ: https://www.anz.com.au/promo/covid-19/
CBA: https://www.commbank.com.au/latest/coronavirus.html
NAB: https://www.nab.com.au/personal/customer-support/covid19-help?own_cid=shortURL:coronavirus
WPC: https://www.westpac.com.au/help/disaster-relief/coronavirus/
STG: https://www.stgeorge.com.au/contact-us/financial-hardship
Mac Bank: https://www.macquarie.com/au/personal/coronavirus
ING: https://www.ing.com.au/help-and-support/coronavirus-covid-19.html?pid=vis:hph1:def:covid19
Suncorp: https://www.suncorp.com.au/banking/covid19-information.html
Adelaide Bank: https://www.adelaidebank.com.au/coronavirus-assistance/
ME Bank: https://www.mebank.com.au/support/coronavirus-information/
Heritage Bank: https://www.heritage.com.au/about/news/2020/heritage-responds-to-covid19-situation
#6. Make sure you keep paying your mortgages/loans until you have been formally deferred on the relief.
#7. Most of the deferrals will cover business loans, personal loans and credit cards (some of those are still being announced)
Points To Consider Before Deferring
- Review your household budget. Are there other areas you can cut back on? If you are looking to defer, you should carefully consider limiting unnecessary discretionary spending.
- Do you have available redraw? Money in an offset or available savings to get you through this period? Perhaps consider these before deferring. Whatever the case, keeping a buffer gives you a hedge in case you need support beyond the 3 or six months.
- Are you currently making more than the minimum repayment? If so, you could lower your current repayment to the minimum.
- Can your current debt be restructured to take advantage of record-low interest rates and repayments? We are expecting some lenders to (potentially) drop rates under 2% in the coming weeks/months.
- If you are more than 29 days behind on your current loan, you may not be eligible for the COVID-19 support. This said, some support may still be available so please get in touch with your mortgage broker.
- While the ability to defer payments is a sound measure and will assist in mitigating immediate cash flow issues, it will, ultimately, create a snowball of debt. So, it is important to look to the future and do some cash flow forecasting and scenario analysis to ensure that you can plan your way through this period and back into normalcy!
- You should also look to forecast the impact of best- and worst-case scenarios and identify areas such as if funding is required during the period of impact. As part of this process, it will be important to assess the requirements (including funding) for ramping back up to 'pre-Coronavirus' trading.
- Please remember, after the 3 or 6-month period, you will be required to make higher repayments unless negotiated otherwise with your lender. If you are still unable to make the required repayments at this time, you will move to the Hardship department of the bank and this will start to impact your credit rating unless further relief is announced later in the year.
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