Need to pause your mortgage repayments? Here are the banks’ deferral policies

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This is one article we hope you never have to read. But if COVID-19 has impacted your income to the point where you may need to pause your mortgage repayments, then we’ve broken down the banks’ deferral policies for you.

Late last week the Australian Banking Association (ABA) announced that small businesses affected by the coronavirus would have their loan repayments deferred for six months.

But when it came to home loan customers, there was no similar, wide-sweeping announcement from the ABA.

Rest assured though that all the big four banks are allowing customers who have been impacted by the coronavirus to hit pause on their mortgages for up to six months.

Many of the smaller lenders are also allowing deferral relief measures too, including Macquarie and Bank of Queensland, for example.

Below we’ve outlined the deferral policies each of the major banks are offering customers. It’s important to note, however, that these aren’t the only hardship options available to you, so if you’d like to find out more, please get in touch.

Commonwealth Bank

All CBA home loan customers are now eligible to defer loan repayments by up to six months. A digital registration process is available for any home loan customer wishing to defer their repayments.

Here’s a full statement on the support CBA is providing for personal customers.

Westpac

“Westpac customers who have lost their job or suffered loss of income as a result of COVID-19 should contact us for three months deferral on their home loan mortgage repayments, with extension for a further three months available after review,” the bank said in a statement.

Here’s the statement and support package details in full.

NAB

Home loan customers experiencing financial challenges will be able to pause their repayments for up to six months, with NAB checking in after three months.

For a customer with a typical home loan of $400,000, this will mean access to an additional $11,006 over six months, or $1,834 per month, NAB says.

Check out their statement for more details on their support package.

ANZ

If you’re experiencing financial difficulty due to COVID-19, ANZ may be able to support you by putting your home loan repayments on hold for six months, with interest capitalised (see below).

If you pause your repayments, ANZ will check in with you after three months.

ANZ have also released a statement detailing their full customer support package.

Other lenders

For all other lenders please check their website for more details, as APRA has recently advised they must report and publicly disclose the nature and terms of any repayment deferrals.

If you’re having trouble finding the details, google: [your lender’s name] + home loan deferral coronavirus.

Failing that, check out their website’s ‘Newsroom’ or ‘Media’ page for recent announcements.

An important final note

It’s important to note the above policies only state that they’ll defer your repayments – it’s likely they won’t stop interest from accruing on your home loan.

For example, as ANZ notes in their statement, home loans with repayments paused will have their “interest capitalised”.

Basically, that means your home loan amount will continue to grow while repayments are on pause, as any unpaid interest will be added to your outstanding loan balance.

With that in mind it’s worth noting there are other options you can explore to reduce your home loan repayments each month besides hitting the pause button, so please feel free to get in touch with us if you’d like to explore those avenues.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Credit scores set for Valentine’s Day boost

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Tens of thousands of Aussies have an extra reason to love Valentine’s Day this year, with their credit scores set to jump after civil court filings disappear from their credit file.

According to consumer and financial law firm MyCRA Lawyers, the change will allow some people to get credit where previously they were rejected, or simply negotiate lower interest rates.

MyCRA Lawyers CEO Graham Doessel says for years borrowers have had their bank funding cut off or rejected because of trivial and vexatious civil court actions that judged them guilty until proven innocent.

“Now only judgments can be recorded on someone’s credit file and those judgments must relate to ‘credit’ to impact someone’s credit rating,” Mr Doessel says.

The end of weaponised civil court actions

Mr Doessel says the change will hopefully end civil court actions by ex-business partners, disgruntled employees and jilted lovers, who use civil courts as a weapon to cripple someone’s credit.

“We’ve had a client with a business employing 120 staff almost sent to the wall because of a trivial dispute with their pool repairman over $3000 that never even went to court,” explains Mr Doessel.

“Other common weaponised civil disputes are ex-business partners suing simply to dry up funding, or even spurned partners who are out to get their ex-lover’s business.

“It’s a victory for common sense.”

Credit reporters to look for loopholes

There’s just one catch, says Mr Doessel. Credit reporting bodies have traditionally reported this information and will still want to where they can, he adds.

“Credit reporting bodies will be reading this legislation as narrowly as possible. In our discussions with one body they are already interpreting the changes differently to us and believe this change only applies to consumer files, not commercial files,” explains Mr Doessel.

This means those with the most to lose, namely small business proprietors, potentially remain in the same predicament, says Mr Doessel.

“If this is the case – and we won’t know until after February 14 when the changes come into effect – then it renders the new laws almost useless because those most affected are small business people,” Mr Doessel said.

Final word

The new requirements come into effect on Valentine’s Day and will be retrospective, so people with a civil court default on their file that isn’t the result of a judgment and isn’t credit-related will have them removed.

If you believe these changes might impact you, then get in touch. We’d love to talk to about your options moving forward.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Why don’t lenders drop my repayments when the interest rate falls?

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A question that’s been popping up a bit lately has been ‘why didn’t my lender reduce my repayments when the interest rate fell last year?’

It’s a good and timely question considering the big four bank economists all expect the RBA to cut the cash rate by 25 basis points to a new record low of 0.5% on February 4.

So why don’t lenders drop your repayments when the interest rate falls?

This question was debated in November by the House of Representatives’ standing committee on economics during its review of Australia’s four major banks and other financial institutions.

In the red corner you have Dr Andrew Leigh MP, the committee’s deputy chair. In the blue corner you have ANZ CEO Shayne Elliott.

Dr Leigh suggested the bank’s default position – to keep repayments at the same level until the customer requested that they be reduced – was not in society’s best interest.

Essentially, Dr Leigh’s argument was that if banks automatically reduced the repayments then customers would have more money in their back pocket to spend each month. As such, the flow-on effect would have a more positive impact on the nation’s economy.

However, Mr Elliott strongly disagreed.

Mr Elliot said the bank’s default position – to keep repayments at the same level, regardless of the interest rate cuts – was in the customer’s best interest because it helped them repay their loan quicker.

“I find it hard to imagine that I could ever push an argument that it is in my customer’s interest to have [a loan] for longer,” said Mr Elliot.

“Maybe we can be better at communicating. But we contact every single customer every single time there is a rate cut and offer them a chance to review their interest rate and lower their payments.”

According to Mr Elliot, just 7% of home loan holders opted to reduce their repayments off the back of the interest rate cuts last year.

Want to reduce your repayments?

Now, we don’t advocate any particular side of the argument. Basically it will boil down to your individual situation and what you believe is in your best interests financially.

But if you do decide that you’d like to reduce your repayments then get in touch and we can help you make the request with your lender.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

How to avoid underinsuring your home

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With Australia currently enduring its worst bushfire season on record, we all want to do our little bit to help out, so today we thought we’d discuss the important topic of underinsurance.

Indeed, researchers are warning that the nation is facing an underinsurance crisis, according to a recent report by the ABC, with the Insurance Council of Australia saying more than four out of every five homes affected by bushfires are underinsured.

Federal MP Susan Templeman had her home destroyed by a bushfire in 2013 and had one thing on her mind as she was walking past burnt-down houses on her street: “Gee, I hope I’ve paid the insurance”.

Fortunately, her insurance payments were up to date. However, her insurer still didn’t give her the news she was hoping to hear.

While her insurer said they’d pay out her claim, they advised they wouldn’t rebuild her home as she was underinsured.

You see, even though Ms Templeman had insured her place for its market value of $400,000, the cost to rebuild was about $600,000.

“And that was just like a bolt from the blue. It completely threw us,” she said.

Ms Templeman ended up selling an investment property to help make up the shortfall. But her neighbours on either side never rebuilt.

How are homes underinsured?

Chloe Lucas, research fellow at the University of Tasmania, explains that most homeowners don’t find out that they’re underinsured until it happens to them.

“Most people use insurance calculators online and it’s very hard to get those to give you a calculation that really reflects the real value of your property,” Ms Lucas told the ABC.

“They are most often based on the market value of your property, and that’s very different to the cost of rebuilding after a disaster.”

Ms Lucas suggests owners consider adding at least 20% to what they think their house is worth to avoid underinsurance.

How else could it affect me?

Chances are, if you haven’t updated your home and contents insurance in several years, you could be underinsured.

There is also an astounding 23% of Australians who have no home and contents insurance at all, says the Insurance Council of Australia.

How can I avoid underinsurance?

Here’s a quick checklist to see whether you’re sufficiently covered:

1. Check your policy and talk to your insurer to understand how much they will currently pay and under what circumstances.

2. Pay attention to clauses around fires and floods, particularly if you live in a higher-risk area.

3. Make sure all your items are covered – many people find they are underinsured because they forgot to include new pieces of technology, home renovations or jewellery.

4. Consider the worst-case scenario – if your house and contents were to be destroyed, does your policy cover the full cost of rebuilding? Make sure you consider building costs today, rather than the original cost of building your house.

Final word

If your home or suburb has been affected by this bushfire season, please know that our thoughts are with you – we know as much as anyone how important the family home is.

If you’re in an area that’s susceptible to bushfires or other natural disasters but has not been affected this season, we hope you stay safe and that this article has been helpful.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Buy now, pay now: the importance of budgeting for gifts

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How much do you think the average Aussie spends on gifts each month? $20, $50 or 100? (hint: we’re a generous bunch). Today we’ll look at why it’s important to budget for these expenses correctly, rather than succumbing to ‘buy now, pay later’ services.

Did you know Australians spend nearly $20 billion a year on gifts?

That’s about $1,200 each per year, or $100 a month, according to a new research report by the Financial Planning Association of Australia (FPA).

It turns out that Gen Y is by far the most generous age bracket (25-39), spending $130 on gifts each month, well ahead of Gen Z ($91), Boomers ($89) and Gen X ($87).

The importance of budgeting for gifts

Ok, so here’s where this feel-good story starts to get a tad concerning: three in four Australians (73%) do not budget for gifts at all.

Now, with the average gift costing between $66 and $137 (depending on the occasion), that’s enough for some households to turn to ‘buy now, pay later’ services.

And make no mistake: these ‘buy now, pay later’ services are booming.

Market leader Afterpay saw its shares rise by 8% this week alone, with the company now valued at more than $7 billion.

In fact, in the 12 months to January 2019, 1.59 million Australians used one of the latest ‘buy-now-pay-later’ digital payment methods, with a whopping 40.6% of its customers being Millennials.

That’s right – Millennials, who are not only by far the most generous gift-givers, but are also seeking to enter the mortgage market for the first time.

So what’s the big deal?

According to recent media reports, lenders are increasingly trawling through bank statements for evidence of outstanding ‘buy now, pay later’ accounts when prospective borrowers apply for a loan.

In one incident, a 21-year-old NSW woman said a couple of hundred dollars worth of Zip Pay purchases, all of which had been paid off, almost prevented her from getting a bank loan to buy her first car.

“I honestly never thought it would impact me being able to get a loan. I am now petrified of using it at all, as I really want a house,” she said.

In another incident, a big 4 bank knocked back a 26-year-old Perth woman’s mortgage application after discovering she had an outstanding Afterpay balance.

These are just two examples of the importance of making sure you factor gifts into your monthly budget to ensure you aren’t setting off a lender’s warning bell by using ‘buy now, pay later’ services.

Need help getting your accounts in order?

If you’ve used a ‘buy now, pay later’ service to buy a gift for a friend, family member or even yourself, there are steps you can take to help minimise the impact it might have on your next loan application.

Your most obvious course of action is to pay it off as soon as you can, and then avoid using the service again in the future.

And look, let’s be honest, no one likes a Scrooge, so your next step would be to ensure you’re including an allocated (and realistic) amount for gifts in your monthly household budget moving forward.

If you’d like to know more, or want a hand getting your monthly budget in order before applying for finance, then get in touch – we’d love to help out.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.