The home loan options to help you through this tough period are broken down below; please note this is not an exhaustive list or to be taken as advice, just a starting point for you to understand the options that are going to be out there. Please reach out to your advisor or bank and discuss your situation in full before making any decisions – everybody’s position is different and thus needs to be discussed individually before making an informed decision.
Temporary Home Loan Options – Covid-19
Extending Your Loan Term
This is where your loan term is extended to the maximum term possible, dropping your repayments down because you are paying your loan off over a longer period of time;
1. You still make regular repayments, but the amount of these will reduce. The amount they reduce by will depend on your situation – namely the amount owing, your current loan term and how far we can push this out.
2. Repayments continue to pay off both principal and interest, meaning your loan will keep reducing.
3. You will pay more interest over the life of your loan, as you are paying it off slower.
4. You will only be able to extend your loan term if the new loan term remains under 30 years from the date you borrowed the money.
This option would see the lowest drop in your repayments. The benefit is your principle payments continue, so you get some relief from a cashflow perspective while still paying off your loan, albeit slower.
Moving your loan to interest only
This is where your loan is restructured so you are not making any principal payments, and just covering the interest – your loan doesn’t reduce, but because you are covering the interest it also doesn’t build up over this period, as it does on a mortgage holiday;
1. You still make regular payments, but the amount of these decrease.
2. Your loan balance doesn’t reduce, as you have stopped making principal repayments and are only covering the interest.
3. You will pay the interest on what you owe on your loan, based on the amount owing and the number of days in each period. This means the repayments can fluctuate slightly.
4. At the end of the allowed or requested interest-only period, your loan will move back to principal and interest with the maximum loan term remaining 30 years from the day you borrowed the money. This means your repayments after this period will be higher than they are currently, as you need to pay the same amount of money back over a shorter timeframe.
5. You will pay more interest over the life of your loan, as you aren’t reducing what you owe for a period of time.
This option falls as the middle option in terms of reducing your outgoings – you still have payments coming out, but they will drop by a larger amount than if you extended your loan term. The negative is that you still have to pay this off in the future over a shorter period, meaning increased loan payments. The flip side is at least your loan balance isn’t increasing, like it does in the next option.
Home Loan Repayment holiday
This is going to be referred to as a number of different things, but most people know this is a mortgage holiday. This will be known and referred to as a repayment holiday, deferral or pause by the different banks and lenders over the next wee while. The way it works, remains the same however.
In this scenario, your loan payments stop completely for the allowed or requested period. What this means is that you are not meeting the principal or interest on your loan. The interest that you would have made with each payment, builds up onto your loan – meaning that your loan increases while you are on this repayment pause. This is known as the interest being capitalised – you are still being charged it, but instead of paying as you go this builds up and must be repaid at a later date.
1. You cease to make any payments on your loan.
2. The interest that you would have been paying with each loan repayment, builds up onto your loan (the interest is capitalised). This means your loan balance increases over this period.
3. After the holiday or deferral, your loan will have to move back to principal and interest – again over the max loan term of 30 years from the date you borrowed the money. Because your loan has increased, and you have to pay this off over a shorter period, your loan repayments will increase compared to what they are now.
This option provides the greatest amount of support during this period – you no longer have mortgage repayments to meet. It does however lead to the largest increase in repayments out the other side.
Additional things to consider at the moment
1. Lower interest rates – the lower interest rates will help to offset increases in repayments in the future. We can’t predict rates with certainty obviously, but they are likely to stay low for some time.
2. Do you have other expenses that you can decrease without compromising your position? Debt that we could tidy up, tighter budgeting etc. This is all going to be very important over this period.
3. We can review your position at each different stage and ensure that we adjust your position accordingly for the immediate goals, while also taking into account future effects.
For some people, just surviving this period is going to be the only thing that matters – losing income for this period will mean they are stretched to the max financially so just need to keep head above water.
4. If you are a business owner, the banks and government have a number of things in place to help. Please contact me to discuss, as they are doing a wonderful job supporting you as much as possible during these times so there are plenty of options out there
1. This is not meant as advice, and the explanations are not exhaustive.
2. We still do not have confirmation as to whether these options, all or some, will be available from the different banks. What we do know is the packages will be a split of these dependant on your situation.
3. This has been created quickly to try get as much info out as quick as possible as we know a lot of you are stressed and wanting to know your options.
4. No matter what you pick, we are required to discuss your position in full and go through your options.
5. You have the option to talk through the above directly with your bank, or your advisor.