Got a home loan? Affected by Covid-19? Here are your options…

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“Knowledge is power” and having information at your fingertips is vital to be able to make informed decisions. This has never been more important than right now as we navigate our way through Covid-19.

There will be some of you that over the next little while will have tough times financially and knowing what you can and can’t do is crucial. The great news is, the government has been bold in making financial decisions which will limit the blow on everyday kiwis. So here’s what those decisions make available to you as a homeowner:

Mortgage Repayment Holiday

Whilst not really a holiday as such, this allows you to take a break from your mortgage repayments for a period of 6 months. This is usually only 3 months but given circumstances it has been extended and also made more readily available. On a loan of $500,000 that would save you $14,300 over 6 months.

What’s important to understand here is that the interest over that period of time won’t disappear. This isn’t a GE six months no interest, no repayment offer. The interest will accrue onto your loan and the impact of this will be that your overall loan term will extend, or your repayments at the end of the holiday will jump up a little bit. You should also be aware that $14,300 will become closer to $24,000 over the course of the loan because you’ll end up paying interest on interest.

So, whilst a holiday sounds great, my advice is only use it if you need it. If you do need it, then absolutely use it because it will take some pain away.

Interest Only Repayments

This is an option that I’m a fan of. Moving your loan from principal and interest (P&I) to interest only (IO) will benefit you cashflow-wise and you’ll still be paying the interest so you don’t get the same negative effect as you do with a mortgage holiday.

I’ve had an example of a client with around $700k of lending and the move to interest only has saved them about $1000 per month or $250 per week.

In this scenario your loan balance would remain the same until such time as you move back onto principle and interest.

One option could be to start with this and then move onto the mortgage repayment holiday if things don’t improve.

Kiwisaver payments

For the time being, you could also look at suspending your Kiwisaver contribution. This is a quick win that will give you accessible cash rather than putting it into a fund that’s hard to access and not growing at the moment. This is by no means financial advice and I’ve not suddenly become an expert in the share market overnight but just like you, I’m a bit more aware that cash is king and having access to it when in need is going to be important.

Consolidate debt

Consolidating all your debts into one loan is a great way so simplifying your outgoings and managing your money. If you’ve got a bit of consumer debt such as credit cards, personal loans or hire purchases then look at moving them all into one. You might even want to consider refinancing your student loan into that as well. This will obviously mean you’ll start paying interest on your loan but it’ll also give you a lot of cash flow back in your pocket. There are a few places to go for this so get in touch with your advisor so you get the right advice.

Overall, now is the time to be smarter with money than you ever have been before. In my opinion, whilst we can lock ourselves away from the virus, no one is going to be immune from the economic impact of this time. If you’ve got any questions at all or want some help then get in touch with us. The sooner the better!

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