The state of the world seems to be changing every hour, and there’s a lot we’re all uncertain of. As you can imagine, we’re getting lots of enquiries from homeowners who are wondering what to do with their mortgage at a time like this. We’re right there with you at Haven.
We’ve put together some strategies below which we hope you’ll find useful. And don’t forget we’re still here to chat to if you need!
The adage ‘cash is king’ is never truer than in a crisis. Cash gives you the flexibility and freedom to respond to changes.
Now is a good time to have a small cash buffer in your mortgage. The thing to remember is that banks don’t want you to default on your mortgage, and they have temporary options in place which are designed to support those who find themselves in financial hardship. Here are some ways to keep your head above water.
Access a cash buffer from the bank
You might already have a buffer which is the difference between your loan limit and your current balance. If you are with Westpac, you can redraw this difference if you need to, and we can show you how to restructure your lending to do that.
No matter which lender you are with, it might be a good time to consider a small top-up using a revolving credit or an offset account. It’s usually easier to do this as part of refinancing from one lender to another, and you get the benefit of a cash back and competitive rates.
Interest-only mortgage repayments
Contemplate moving your mortgage(s) on to interest-only. On a $500,000 mortgage this would free up $1,000 of cash flow per month. This is a good option for business owners who are facing uncertain cash flows as it gives them more flexibility.
Note: If you don’t have any obvious reason to go to interest-only and if you haven’t been impacted by COV-19 with a salary reduction or loss of job, then the bank is unlikely to support this.
Mortgage repayment holiday
It’s not really a holiday. In essence, the bank allows you to not make any repayments on your mortgage for a period – usually 3 months, but it can be extended. Interest will still accumulate on the mortgage.
Given how low mortgage rates are, the cost isn’t high and you shouldn’t feel guilty asking for a repayment holiday. If your property is worth $800,000 with a mortgage of $500,000 then you would only eat up $8,750 of your capital over six months.
That way you get to stay in your home and not have to pay the mortgage for up to six months. This option will work well if you do lose your income. Due to COVID-19, the Government has no stand-down on work and income benefits, so you can receive a benefit and not service the mortgage in the short-term.
What if I have other debts?
If you have any high paying debts like credit cards, personal loans, or car loans, now is the time to consolidate them into the mortgage. It reduces the interest, but also allows you to reduce the repayments and free up your cash flow.
Another option is to consolidate your student loans into the mortgage. Student loans consume roughly 12% of your gross income deducted from your net pay. For someone on $100,000, that is close to $1,000 per month. Consolidating a $40,000 student loan onto your mortgage would free up roughly $800 per month.
Obviously putting debts onto the mortgage over a long term is not a smart idea in the long run as the goal should be to pay the debt off. However, in the short term it can provide much needed breathing space.
Temporarily reduce other outgoings
Think about all of your other monthly expenses – such as gym memberships or other subscriptions. Do you need them all?
If you lease a car park at your work but find that you are going to be working from home for an extended period, consider whether or not you can afford to pay for an empty space.
Take care, be kind and look out for each other. We’re all in this together.