Do you need to make regular repayments on your finance? We are in a time of great financial uncertainty. If you have a home or business loan, you may be worrying about the impact of COVID-19 on your budget.
No one can tell what will happen over the weeks and months ahead. Just because we don’t know what comes next, it doesn’t mean you shouldn’t take action now. The best way to prepare your finances for tomorrow is to put yourself in the best possible position today.
Making some simple changes could give you the financial flexibility you need to get through. So what options do you have? There are 3 main ways that your loan could be restructured to make it easier to afford your payments.
1. Time for a mortgage holiday?
A mortgage holiday is a complete break from paying your mortgage. If your finances are seriously affected today, this could be the right option for you.
When you elect to take a mortgage holiday, your lender frees you from making repayments on your loan for a limited period of time. The cost of those payments are then added to your loan. Your lender will recalculate your interest charges based on your new total. This means that while you’re on a mortgage holiday, your loan will steadily increase in value.
When should you apply for a mortgage holiday?
A mortgage holiday is a good solution if you’re likely to be unable to make a loan repayment. It’s important to try to act before you miss a payment. This will help to protect your credit position and make it easier to get through.
How long can a mortgage holiday be?
Mortgage holidays can vary in length depending on your needs and what your lender agrees to. This is usually 3 months however case by case lender may consider 6 months. Before your mortgage holiday is over you can review your position and decide what comes next.
When your mortgage holiday ends, you will need to either increase your repayments or commit to paying off your loan for longer. This is a good time to work through the details with one of our team so you understand the financial impact of how you proceed.
2. Time to switch to interest only repayments?
If you are not at risk of missing a payment, you may choose to go interest only. Interest only repayments are a good way to remain flexible in an uncertain economic situation. If you’re not sure how robust your finances are, reducing your home loan repayments could provide more stability.
How does interest only work?
When you switch to interest only, your repayments will cover the cost of the interest on your loan but will stop paying off the principal. This could free up the cash you need for day-to-day essentials if your income is likely to fluctuate over the weeks ahead. It also reduces the amount you are committed to repaying, making it easier to continue to meet the terms of your loan.
Interest only offers more flexibility
If you’re not sure how the COVID-19 outbreak will impact your finances, going interest only could give you more flexibility. We recommend still setting aside your full repayment in a separate bank account where it will be available should you need it. If you reach the end of the interest only period without using those funds, our team can help you to structure lump sum payments to reduce your loan’s principal balance.
3. Finances secure? Let’s give your loan a health check
Even if your finances are stable, this is a good opportunity to give your home or business loan a health check. There are highly competitive interest rates available and it could be a good time to fix a portion of your loan and take advantage of the potential savings.
Whatever your financial position, now is the right time to hold non-essential spend and review your budget. Contact a member of our team and we can take you through the options and help you to ensure your financial position is safe and stable.
We’re here to support you
If you’re concerned about the impact of COVID-19 on your finances: now is the time to act. Contact the iConsult team today and we can help you find the best solution to protect your long term financial goals. We’re experts at identifying the right finance to meet your needs.