COVID-19: Options for managing your home loan under the current climate
Managing your home loan can be a headache at the best of times. With the Coronavirus (COVID-19) pandemic, the current climate is constantly changing, and it can be hard to keep up with the latest news and understand how it impacts you and your mortgage. To help, the Credit Savvy Team have compiled some of the available options introduced by the big 4 banks that you may like to consider when managing your home loan under these new conditions.
Talk to your lender about their financial support packages
The first and most important thing to remember is that if you’re struggling to make your home loan repayments, get in touch with your lender as soon as possible and ask how they might assist you.
Many lenders, including all four of the big banks, have committed to some measures, offering emergency COVID-19 financial relief packages and support to directly help their home loan customers. Additionally, the Australian Government has also introduced stimulus packages to help individuals and businesses in need, which may help take some of the stress out of your household.
You can find more information about these support packages in our article: Emergency COVID-19 financial relief support you should know about.
Find ways to ease your financial stress
Did you know that many lenders do not automatically reduce your home loan repayment when variable interest rates drop? Since June 2019, there have been five cuts to the official cash rate, which means you may be paying more than the minimum amount on your home loan. If your budget is feeling the strain, get in touch with your lender to see if you have the option to reduce your home loan repayment.
If you have been making extra repayments on your home loan, you may be able to redraw these extra funds from your home loan account. Similarly, if you have money in an offset account, you could consider accessing these funds to help ease your financial stress. Don’t forget, if you do use the funds in your offset account, the amount withdrawn will no longer offset your home loan balance and may result in you paying more interest (than previously) over the remaining life of your loan.
What if I’m not affected yet?
If you feel you have not been impacted by COVID-19, there are still many precautionary steps you can take to prepare for the worst-case scenario. Here are some things you may like to consider:
- Can my current lender offer me a better interest rate?
- Should I refinance my home loan with another lender?
- Can I put extra cash into an offset account?
- Do I have an emergency fund in case my situation changes?
- Is my budget flexible enough to account for potential changes?
Can I defer my home loan repayments?
Many lenders are offering their customers the ability to defer their repayments for a set number of months. Get in touch with your lender or visit their website for specific information about their deferral options.
I have a fixed interest rate. Can I get the new advertised fixed rate on my loan?
Fixed interest rates remain unchanged for the entire length of the fixed rate period. If you are still in the fixed rate period and want to switch to the new advertised rate, you will need to break your fixed rate and may have to pay a break cost. Always do your research and check what fees are applicable before making changes to your loan!
Can missing my home loan repayments affect my credit score?
If you don’t have any special arrangements in place with your lender, missing your repayments can negatively impact your credit score, which could affect your future credit applications. Check out our article for more information: Common COVID-19 Questions: Home loan repayments & your credit score
Where can I find additional resources?
If you’re experiencing financial hardship, get in touch with your financial provider as a priority, as they may have dedicated teams to support you through these tough times. You can also check out a range of resources in our Key Resources article.
The COVID-19 & your finances series contains tips and support information to help you manage your finances during this difficult time.