SYDNEY, Australia – Banks, and lenders are urging home loan customers to take urgent actions to make sure that they aren’t producing massive repayments during the health crisis due to the coronavirus pandemic.
Although mortgage loans were never cheaper, there is now not a lot of interest rate that goes as low as 2%. Over tens of thousands of Australian home loan customers already dropped the amounts or paused their mortgage repayments as a result of the spreading coronavirus in the country.
The average home loan is currently sitting at around $500,000, and the massive impact of the coronavirus pandemic in the economy continues to spread, making it crucial for borrowers to reevaluate their financial position.
John Campbell, the head of home loans at ANZ, said that a lot of people have no idea about the available options that they can avail right now.
And while banks and lenders are advising all borrowers to contact and seek help from their banks, they must do so through the online channels put in place for faster response.
During the period when there are meagre interest rates, a lot of borrowers were successful in scaling ahead of their mortgage repayments. Some offset accounts have managed to build decent-sized savings. It is where excess cash for the repayments sits, which borrowers can withdraw anytime.
According to Mr Campbell, it is ideal for borrowers right now to check up on whatever savings or fund available for them. He stated that it would be an advantage if they can draw from these accounts during financial difficulties, like in the period of the pandemic.
He advised borrowers to check their internet banking or to look if there are available funds to get from their offset accounts. It is the best and easiest way to get cash immediately, he said.
Meanwhile, the latest statistics from the Reserve Bank of Australia suggest that on average, borrowers are 2.5 years ahead of their home loan repayments. The study includes the cash accumulated in borrower’s redraw and offset accounts.
However, he said that customer should be mindful about taking money from their offset and redraw facilities as it could increase the total loaned amount on their balance. Plus, it can also inflate the total interest paid on their loans.
Since June last year, the Reserve Bank already made five cash rate cuts, bringing it down to its lowest effective percentage at 0.25%.
The rate cut resulted in the decline for both the variable and fixed loan offers.
ANZ, along with some Australian banks, however, kept their variable rate loan clients at a much higher level. It means that despite the fall in cash rates, their loan repayments remained at the same level. It allowed some customers to scale ahead of their home loans.
However, according to Mr Campbell, borrowers can drop their regular mortgage repayments to the minimum level if they want to free up more money.
He said that borrowers hard on cash due to the spreading virus could look at their current loan repayments, check the minimum amount for that. Then, they can have the option to choose minimum home loan repayments.
Meanwhile, Mr Campbell noted that a lot of people have no idea if they are paying more amount than they are using. He said that it is also an advantage to pay more for their home loans during this time when it builds a kind of a buffer.
Another option that borrowers can take advantage of is mortgage deferrals. Banks and lenders now offer their customers deferrals on their home loan repayments from three to six months if the spreading virus profoundly impacts them.
According to Anna Bligh, the chief executive of Australian Banking Institution, they are beginning to receive hundreds of calls from customers asking for loan deferrals.
She said that the relief option is available for home loan customers who lost their employment, had their work hours cut, or having any difficulty with making their mortgage repayments due to the coronavirus pandemic.
Ms Bligh noted that with banks helping to take the worries of making home loan repayments off from borrowers, it builds the idea of hibernation affordable and possible for all Australians.
However, while the delay in home loans can pause the repayments for a couple of months, it doesn’t say the same for the interest charges.
The mortgage interest adds up into the loan balance throughout the deferment period. Borrowers will have an option to pay it off over the remaining loan period or extend the loan period.
Meanwhile, Sally Tindall, the spokeswoman for a financial comparison website, said that the main drivers for interest rates are the borrowers.
She said that while there is a financial difficulty now, banks are ready and willing to help customers in negotiating about their variable rates if they have a good track record on making their loan repayments. They will be also likely to consider rearranging home loans if they think customers may take the business to another lender, she added.
She encouraged borrowers to find out what their banks are offering right now and to check what other lenders are providing their customers as well. Ms Tindall said that these factors would make the best ammunition if borrowers will go and negotiate with their banks.
Based on the financial comparison website, the current cheapest variable home loan rate offer for owner-occupiers is only 2.09%, which is with Well Home Loans. Meanwhile, the most low-cost fixed-rate home loans for three years is at 2.44%, which is with Reduce Home Loans and Homestart Finance.
And while there are tons of option for borrowers right now, which are offering much-needed relief for those having issues with making their home loans repayments, not all of them are ideal.
Ms Tindall warned customers to be wary and get all necessary details before they go and fix their home loans.
She said that fixed home loans are often less flexible. If borrowers choose to set their mortgage for fixed rates, they have to be aware of the lack of offset accounts, the limits on extra loan repayments, and often expensive fees when they try to break their loan before the agreed fixed period ends.