Corona Virus Bank Assistance – How Does It Work?
Following the escalation in the effects of the Corona Virus on the Australian economy, almost all lenders have come out with assistance strategies to help Australians stay on top of their finances in this uncertain time. I thought that I would put a quick article together, just covering off on how they work in general. In doing this, I hope to help you make a bit more of an informed decision. Please note this is article is general in nature, and every person’s circumstances are different. If you would like to discuss your specific scenario with regards to finance, please get in touch with us.
Pre-Corona Virus, if you got into substantial hardship, like losing your job, for instance, and you could no longer afford to pay your mortgage, lenders would have a hardship line that you could call. From here, they would negotiate a way that you could either pay a part payment, or just the interest component, or defer payments. The screening process for this would be quite rigorous, and the real negative is that as soon as you entered hardship measures with a bank, it would be registered on your credit record. This would taint your credit record, making future finance or refinancing very difficult.
After emergency meetings with the government about what measures could cushion the effects of the Coronavirus on people, one of the outcomes was a relief from lenders, with regards to mortgages. What the basic outcome for now is, is that clients can now enter into the hardship as mentioned earlier measures with lenders. The two main differences are that it is now a lot easier to do, as we all have a reason; the virus is affecting everything. The second difference is that entering into hardship now under the current Corona Virus circumstances will not affect your credit score.
If you have lost your job, or have experienced a significant downturn in business, this is a game-changer, giving people the breathing room that they need to make ends meet. Again there are different levels of assistance, from paying what you can afford over the next few months to converting to interest-only repayments to having a repayment holiday for up to six months. I would strongly suggest that anyone who is worried that they are not going to be able to make ends meet, to get in touch with your lender and have a chat through there dedicated helpline as to what can be done in your case. CastleMortgages are Mortgage Brokers based in Adelaide, we have most of the lender’s contact details at hand for this and can point you in the right direction, to have the conversation, so get in touch with us.
I have had a few clients that are in a very strong position finacialy, call and say that they are going to “take advantage ” of the repayment holiday that banks are allowing. It is here that I would like to highlight that this is a great initiative to help people out of a stressful situation, but there are negatives. When you suspend loan repayments, all of the lenders will still be charging you interest on your loan. Let’s say, for example, that the interest component on your monthly loan repayment was $1200.00 per month, and your remaining loan balance was $400000.00. Taking the 6-month hiatis would mean you are paying nothing towards your loan. The lender will add the $1200.00 monthly to your outstanding loan balance. This means at the end of the six months, your outstanding loan balance will be $402700.00. Depending on the lender’s policy, you will now have a higher loan amount to pay off in the same period you had before going into the six-month break, or you will have six months shorter to pay the loan off. For not losing your home, this is a small price to pay, but if you are in a position that has not changed financially or have the means to see this through, you should consider it. Just doing it because it is available and you want to spend money on frivolous things, would be folly.
If you think that you are going to experience financial difficulty in the near future because of the Covid-19 downturn, I would urge you to get in touch with your lender sooner rather than later. Unfortunatly, this is one thing your trusty broker can not do on your behalf. What we can do is point you in the right direction. If you need to find out what the right number is to ring for your lender, get in touch. If you would like to have a chat about the structuring of your finance , get in touch. If you need financial advise, we have industry experts we can refer you to if you do not have your own.
Castle Mortgage is a mortgage broking company that is based in Adelaide. We are good at what we do and strive to serve clients to the best of our ability. We would love to have a chat about your financing needs, be they personal loans, commercial finance, asset finance, car loans, or residential.