These are troubling times. COVID-19 has already meant large scale changes to the way we live and work, with more to come.
With social distancing and shutdown orders expanding across the country, a huge number of us are worried about our economic security. Many people have already lost their jobs, especially those who work in hospitality and tourism, and there is no doubt more to come.
While nobody knows what will happen next, both Federal and state governments have put together a raft of relief measures for individuals who are impacted by the COVID-19 pandemic. They’ve recognised that keeping a roof over everyone’s head must be a priority while we ride out the storm.
What you can access will depend on your personal circumstances. However, we’ve put together an explainer on how home owners can access some help if they need it.
Mortgage relief
All of the major banks have announced that they will support customers who have difficulty paying their mortgages. They will all allow you to defer repayments for up to six months if you have lost your job or suffered a reduction in income due to COVID-19.
NAB and Commonwealth allows you to pause repayments for a single stretch of up to six months. Westpac/St. George and ANZ are offering an initial three month chunk that is then extendable by another three months on review.
Interest on your loan will be capitalised during this period. What this means is that interest and charges will add to the loan balance. At the end of the support period, your bank will calculate the total amount owing and extend your loan term so that your repayments stay the same.
For example, let’s say that you owe $250,000 on your mortgage over 25 years, with a monthly repayment of $1200. The interest component on your loan is $800, and you usually pay $400 off the principal balance.
Over the six months in which you don’t pay, you accrue (6 x $800) or $4800 in interest payments plus $200 in fees.
When you are able to pay again, your bank recalculates your loan as $255,000. By extending the term out to 26 years, your repayment stays the same.
Rock bottom home loan rates
The RBA announced that they were cutting rates to 0.25pc last week and that they intend to keep rates at this floor for several years if necessary. There will be no further cuts, as the RBA considers 0.25pc to be effectively zero.
ANZ has already passed this cut on, announcing that it will decrease its variable rate by 0.15% as of 27 March. All major banks have also put COVID-19 support package rates into place as follows:
Westpac/St. George
A 2.29% p.a. fixed rate home loan for 1-, 2- and 3-years (owner-occupier P&I with a Premier Advantage Package), effective 27 March
NAB
Fixed home loan rates of 2.39% p.a. for 1-year, 2.29% p.a. for 2- and 3-year, and 2.79% p.a. for 5-year (owner-occupier P&I), effective 25 March
A 2.19% p.a. 2-year fixed home loam for first home buyers only
ANZ
Variable interest loan rates decreased by 0.15% p.a., effective 27 March
Fixed home loan rate of 2.19% p.a. (owner-occupier P&I)
Commonwealth
Fixed home loan rate of 2.29% p.a. for 1- 2- and 3-year terms with Wealth Package. The rates are available from 30 March but are also available to existing requests to switch and split, and all applications that fund between Friday 20 March and Monday 30 March, where Rate Lock has not been chosen.
Small business support
Many businesses will be severely impacted by the crisis. All the major banks are offering price reductions on business overdrafts and small business loans, including equipment finance loans. You can also access six month deferral periods for business term loans under the same terms as home loans.
Lending for new home buyers
If you were planning to buy a house, you might be worried about taking the plunge. Rest assured that as long as your employment is still secure, the banks will still be lending money. All of the major banks have announced home lending funds, backed by the government, to assist more Australians into home ownership. And with home loans at rock bottom rates, it may be more affordable than you think.
If you’re concerned about your home loan, it’s a good idea to get in touch with your bank sooner rather than later. Stay safe, keep calm and together we’ll get through this.