The rapid changes during COVID 19 have seen unprecedented measures taken by the Government and lenders in an effort to curb the economic and social impacts of the unfolding crisis.
We have seen the introduction of extraordinary financials measures including:
- Mortgage payment relief
- Rental relief
- Job Seeker payments to individuals
- Job Keeper payments to small business
In this article we address the most common queries and topics of conversation over the past month.
1. MORTGAGE PAYMENTS – TO DEFER OR NOT TO DEFER?
For the first time in living memory lenders have offered the option to defer mortgage repayments for up to 6 months with no penalty or adverse impact to your personal credit rating.
It is important to remember that during this period your interest is still being calculated and will be added to the balance of the loan at the end of the deferral period.
Whether you should defer your mortgage repayments or not depends largely on your personal circumstances. If your individual and household employment and income have been impacted, and you have little savings available to meet your obligations, then a mortgage repayment deferral may be the easiest option to alleviate your financial stress.
However, if your employment and household income has been unaffected or reduced marginally, we would recommend you continue to meet your contracted repayments. Deferring repayments will only add interest and months/years to the timeframe required to repay your loan
2. INTEREST RATES – TO FIX OR NOT TO FIX?
In the March RBA meeting the official cash rate was cut by 0.25% to 0.25%. The need for banks to support liquidity, whilst taking into account rising funding costs, has seen banks respond more aggressively with cuts to their fixed interest rate products as follows:
| Personal P&I | ANZ | CBA | NAB | Westpac |
| Cut to Variable Rate | 0.15% | No change | No change | No change |
| Fixed Rate – 1 year | No change | 2.29% | 2.39% | 2.29% |
| Fixed Rate – 2 year | 2.19% | 2.29% | 2.29% | 2.29% |
| Fixed Rate – 3 year | No change | 2.29% | 2.29% | 2.29% |
| Investment P&I | ANZ | CBA | NAB | Westpac |
| Cut to Variable Rate | 0.15% | No change | No change | No change |
| Fixed Rate – 1 year | No change | 2.69% | 2.69% | No change |
| Fixed Rate – 2 year | No change | 2.89% | 2.59% | No change |
| Fixed Rate – 3 year | No change | 2.89% | 2.59% | No change |
The decision on whether to fix or not will be influenced by your own circumstances and the following may assist with your thought process:
- What will happen to interest rates in the future (the million-dollar question with no certainty amid the current economic conditions domestically and globally)
- Do I plan to make any lump sum reductions to my home loan during the fixed rate period
- Is it worth considering a partial fix of my home loan
- Do I plan to sell my property in the near future
- How much will I save by switching from my current variable rate to a fixed rate
3. WILL BORROWING BECOME MORE DIFFICULT?
Despite the mortgage relief package we are already seeing signs of lending tightening further for specific industries and fields of employment.
Many lenders have started to introduce reduced LVR policies and restrictions on income derived from the hospitality, tourism, entertainment and travel sectors. We believe these changes are just the beginning of further restrictions to be announced over the coming weeks and months.
Although the jury is still out on how the property market is going to be affected, we are already seeing property valuations being impacted and commentary centred around the current COVID crisis and uncertainty about how this will impact property prices in the future.
4. WHAT CAN WE DO TO PREPARE?
Now is the time, if possible, to look at your own financial situation and consider the following strategies.
Build Equity
With interest rates so low and falling, take the opportunity to repay or keep your mortgages at the older (higher) interest rates. This will both accelerate debt reduction and build a buffer in the event you need to access it.One thing seems certain, we will be in a low interest environment for quite some time yet so don’t take it for granted!
Superannuation & Investments
Falling asset prices may be a time to take advantage of the opportunities that may be relevant for your own risk profile. Seek advice of course.
Review & Prepare
The lack of discretionary spending now, whilst hurting the economy in the short term, is a chance to review your “P&L” and build your “Balance Sheet”. This is something that long term thinking economists have been advising households need to do for years. In some respects, not being able to spend on discretionary items is forced savings, can you quantify the amount of these and where will it can be directed? It is therefore a great time to create a Budget and/or set some financial goals. There are several on-line tools that can assist so take the chance to improve your financial literacy
FINAL THOUGHTS
In these uncertain times we all face different challenges. Our best wishes extend to you, your families and whatever matters to you and if you need assistance, we encourage you to reach out. We are here to help.
Ardent Lending Co. Team
W – www.ardentlendingco.com.au
M – 0448 591 731
