We are very fortunate that banks are offering financial assistance to those impacted by the COVID-19 virus crisis. But what’s true and what’s not? We break it down for you here.
Myth 1: Most borrowers can ask to receive a ‘mortgage holiday’ so they don’t have to make repayments on their home loan during the COVID-19 crisis.
Fact 1: Deferral of mortgage repayments is only available for those who are facing significant financial hardship due to the impacts of the COVID-19 crisis and the measures to contain it. This typically means you need to have suffered a major change in circumstances such as job loss or the closure of your own business. You need to apply to your lender and they will determine whether you fit the criteria.
Myth 2: If you can get a deferral on your loan repayments you should take it because it means you may not have to pay interest for up to six months.
Fact 2: It is recommended that you keep making your usual loan repayments if possible, since deferring your repayments increases the overall cost of your loan. This is because the interest you incur during the deferral period will be capitalised (i.e. added on to your mortgage), so you will need to either increase your interest repayments after the deferral period or extend your loan term; both of these will increase total interest. Additionally, any available redraw on your loan may be used first by your lender to make your repayments during the support period. Therefore, if you need access to this money during the support period, consider transferring it to another account now.
Myth 3: If you are struggling to make loan repayments, or will struggle in the near future, you should just pay when you can as the banks are being more flexible.
Fact 3: If you are struggling to make repayments or suspect that you soon will be, contact your lender ASAP to discuss how they can help you. If you go into arrears on your mortgage it will affect your credit rating and this may make it more difficult for you to apply for financial assistance later on.
While you should get in touch with your lender directly to arrange financial assistance, please feel free to contact your Smartline adviser if you have any other concerns. They are happy to support you throughout this uncertain period.