Amicus – Home Loans:
Repayment / affordability options as a result of Covid-19.
The Options
- Interest rates / Loan Structure Optimum for you?
- Lower your Principal and Interest Repayments
- “Interest Only” repayments
- “Mortgage Holiday” (Repayment Deferral)
- Borrow more money (top up)
Interest rates / loan structure Optimum for you?
- First step to any action
- Can you lower your interest rate cost?
- It may be beneficial to break a fixed rate and refix on a lower rate. Breaking a fixed rate can incur a fee.
- Any debt on variable / floating that you can fix onto a lower rate?
Lower your Principal and Interest Repayments
- If you have been paying more than the minimum repayments you should be able to lower your repayment amount to the minimum.
- This is a good result as it means you would still be paying some off the loan (principal)
“Interest Only” repayments (I/O)
- This is where you just pay the interest payable on the loan. Loan Balance therefore stays the same throughout.
- Simple calculation: Loan amount x interest rate % divided by 52 weeks, 26 fortnights, 12 months etc.
- E.g. $350,000 x 3.39% = $11,865 / 26 fortnights = $456 p/f interest only
- Principal & Interest (P&I) on a loan of this size on a 25 yr term would be $799 p/f
- Good option if you are having / going to have cashflow issues but can afford to pay the interest.
- If you can, save the money the would have been Principal and once income is back to normal you can lump sum pay off the loan.
“Mortgage Holiday” (Repayment Deferral)
- Referred to as a mortgage “holiday” in the media. Better called Deferral
- No repayments are made but interest continues to accrue.
- Your loan will essentially increase while you are not making payments. The interest will continue to accrue and be added to the loan balance.
- For example, if you have a $400,000 loan at 4% this loan will now be $408,000 after 6 months and your loan term will extend.
- Therefore not recommended, but for some may be the only option if you have severely affected income / cashflow.
Borrow more money (top up)
- Loan application made to bank for a new loan.
- Full assessment of income and expenses
- Can provide money to spend now any way you like.
- Only recommended if you’re 100% confident you can afford the full loan long term.
When / How can I make these changes?
- These changes can be made immediately even if you are on a fixed rate
- Can be ended early without fee if you wish
- If in any doubt, discuss with trusted adviser or banker about your options as early as possible.
- The worst thing you can do is nothing.
To find out more, contact your local adviser or contact Amicus today.
