MANAGING YOUR MORTGAGE DURING COVID 19


MANAGING YOUR MORTGAGE DURING COVID 19

COVID 19 pandemic has brought the worst time for economies more quickly than any other event in history. This period of crisis bills are the biggest worries for people and if you are a homeowner, then the biggest out of them is the mortgage repayments. But there is no need to worry as we have come up with some really good options that can help you manage your mortgage and ease your pain of repayments at such a devastating time.

Repayment Holiday

A Repayment Holiday or deferral means a break from usual debt repayments for a period of time. It basically means putting a pause or break on your repayments (Interest is still charged on the paused period ) but at the expense of higher repayments in the future or increasing the period of the loan resulting in an increased total cost of the loan. There are many options for deferrals like:-

  • Full Repayment pause
  • Partial Repayment Pause
  • Interest Only repayment deferralDrawback – The major drawback of the Repayment holiday is that in case you want to refinance your home loan then it gets difficult as most of the lenders have a policy of perfect three to six months of repayments on your home loan in order to fulfill the eligibility of refinancing. And only some specialist lenders will refinance the loan and that comes at an expense of the higher interest rates. Also, Repayment holiday increases the total cost of the loan as you are still incurring interest on the borrowed amount

 

Debt Consolidation

Debt Consolidation is the process of combining more than one debt obligation into your home loan with a motive of having one monthly repayment of all your debts and a comparatively lower interest rate structure, tenure, etc. It further means the amount received from the loan is used to pay off other debts. Thus, if you have more debts other than the home loans and you are paying higher interest rates towards them then you can consolidate them in your home loan at the same interest rate. This strategy is a great option in the current crisis if you are having more than one debt as it will help to make repayments affordable if a lower interest rate is available.

Drawback – The major drawback of debt consolidation is that you basically lose more equity in your asset if you are consolidating unsecured debts with your home loan or secured loan

Interest-Only Payments

Another option in the current crisis is the Interest-Only payment option. It basically means that the repayments only cover the interest on the amount borrowed and paying nothing from the principal amount (borrowed amount) which further means that your debt is not reducing. The period normally ranges from 1-5 years and varies as per the case, and at the end of the interest-only period the loans changes back to the principal and interest (P&I) Repayment plan. This option is a good opportunity in this crisis period as it reduces the repayment amount for the Interest-only period.

The major difference between Interest Only option and Interest-Only Repayment deferrals are of the period as Repayment deferral option will generally last for 6 months or max 12 months in some cases but the interest-only option can be taken for 1- 5 years (also varies from case to case)

Drawback – The major drawback of this option is that it increases the cost of the loan and have higher repayments after the end of the interest-only period.

Minimum Loan repayments

This option is only available to people who were paying higher repayment amounts than required as in the current crisis, these people can ask their lender to reduce repayment to the minimum repayments as per the bank policy.

Drawback – The drawback of this option is basically the higher cost of the loan as previously higher repayments were made towards principal which used to reduce the cost of the loan

All of the above options can be used to ease your time in the current crisis but all of them come with some drawbacks. So it is recommended to take proper guidance of an expert like mortgage brokers to help you choose the right option for you.

In case you need assistance, our brokers are there to help you

Feel free to contact us at 03 98011482 or email us at info@loanjunction.com.au 

 

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