In light of the current coronavirus crisis, it is inevitable some mortgage customers will experience financial difficulties – as some jobs will be put on hold for an extended period, and job losses will also occur. Cash flow is the life blood of any business, and your household is no different.
Right now, governments are working closely with banks and lenders to ensure our economy remains viable, and to ensure appropriate aid is provided to all Australians whilst we ride out this storm.
Last Thursday 19th March 2020, the RBA cut the official cash rate to a record low of 0.25% as it forecasts significant job losses and attempts to shield the economy from the financial fallout of the coronavirus pandemic. As a comparison, in 2008 the RBA had a pre-GFC cash rate of 7.25% – today the cash rate is 0.25%.
At time of writing this blog, most banks and lenders are yet to announce their intention in relation to how much of the RBA’s emergency rate cut (of 19th March 2020) will be passed onto residential mortgage customers. Your bank/lender will write to you with any changes as they are made.
Banks and lenders are starting to announce ‘survivor packages’ to help businesses and mortgage customers ride out this storm. We’re seeing lenders announce a freeze to loan repayments for businesses by as much as 6 months – among other initiatives. Some lenders are extending this same initiative for residential home loan customers who are struggling to meet their home loan repayment commitments. I expect to see more lender announcements over the coming week.
The coronavirus pandemic is unprecedented and has thrown everyone off guard. I encourage you to stay calm and positive – this dark cloud will pass. For some people this will seem like the end of the world. Keep your head up high and have faith knowing that this is temporary.
Right now we’re in the eye of the storm, and during a crisis the basics of money are easily forgotten.
Here are my tips and reminders in case you haven’t considered the following when it comes to managing your cash flow:
- Interest rates have been falling for quite some time which means you are likely to be ahead on your home loan repayments. Jump online and check how much you have in redraw as this is cash at your disposal which you can tap into right away
- Banks and lenders don’t reduce your home loan repayments when interest rates drop. If your cash flow is tight right now, contact your bank/lender and request for your repayments to be reduced to the absolute minimum
- Stay on top of your bank accounts, including offset accounts, and take stock of how much money you actually have right now (across all your bank accounts). If you have bank accounts here there and everywhere, it may be time to consolidate
- Have you stashed cash at home which you may have forgotten about?
- Go through the transactions on your bank accounts and ensure you’re not paying for things that you don’t need. The most common I see is gym memberships that haven’t been used in months, foxtel that is rarely used, spotify subscriptions, netflix, and other subscriptions for “stuff” that you once signed up for which is no longer in use
- If you have personal loans, car loans, and credit card debts, consolidating these as part of your home loan could make a dent in your cash flow repayment commitments. You need to have sufficient equity in your home to consolidate such debts, and you also need to qualify to refinance. If you’re not sure, send us an enquiry via the contact us page on our website
Last week I published a blog on the topic of coronavirus and property, sharing my thoughts and advice on this very topic. If you’re worried about the value of your home dropping, and/or the value of your investment property (properties) dropping, read my blog again and remember to keep level headed. Don’t make long-term financial decisions on the last 24 hours of news, and certainly don’t make long-term financial decisions on a short-term crisis.
If you get to a point where you are struggling to meet your home loan repayment commitments, get onto your bank/lender right away and don’t procrastinate. Don’t just ignore the issue as there is help at hand. Everyone is working together..!!
If you have sufficient financial buffers in place, I recommend you tap into these in the first instance – without leaving yourself dry of course. Taking a break from your home loan repayments should be the last resort as interest will compound on the outstanding balance. Interest is calculated daily and charged to your home loan account monthly – meaning in the long-run you end with a bigger home loan and more (overall) loan interest paid.
If we can help with providing you more details about the information covered here, please feel free to reach out at anytime. We’re here to support you in any way we can during this difficult time.
Take care and I wish you and your loved ones all the very best during this difficult time.
Disclaimer: The Information is general in nature and does not take into account your particular investment objectives or financial situation. It does not constitute, and should not be relied on as, financial or investment advice or recommendations (expressed or implied) and is not an invitation to take up securities or other financial products or services. No decision should be made on the basis of the information without first seeking expert financial advice. Your full financial needs and requirements would need to be assessed prior to any offer or acceptance of a loan product. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.