The COVID-19 crisis is having a big impact in Australia with job losses, job uncertainty and an economic slowdown the likes that we have never seen before.
Home owners are particularly worried about how to continue to pay their mortgages and landlords have the additional stress of multiple mortgages to worry about, with the possibility of tenants unable to pay their rent.
The government and banks are now stepping up to the mark with financial aid packages to protect homeowners from financial collapse during this time.
Here are some incentives currently being offered to cushion and protect mortgages while the Coronavirus necessitates isolation and restriction of trade.
Note: It is important to remember that there are no free passes with these packages. Home loans can be deferred, but this will extend the life of your mortgage. This means at the end of the payment pause period your loan balance will be higher, and your minimum repayments will increase slightly so that your loan can still be paid within your loan term.
Mortgage payment holidays
The Big 4 banks have come to the party with new support measures to support their home loan customers during the crisis. However, serious consideration needs to be given as to whether to defer loan repayments. Interest will continue to accrue and be capitalised into the loan. This means it will eventually cost you more if you defer payments. Another critical issue to consider is that the banks have stated that if a borrower defers repayments, any funds sitting in redraw/available funds will be frozen.
It is recommended that you seek financial advice before applying for these packages to ensure you are making the best decision for the long term:
Features:
- Repayments can be deferred for up to 6 months
- Interest will be capitalised during this period
- The repayments will be increased so that the loan will be repaid over the remaining term.
- Will not charge interest on interest.
Features:
- Deferment of repayments for 6 months
- Interest will be capitalised during this period
- Options to change repayments or access redraw funds.
- At the end of the deferred period, repayments will be increased to catch up.
Features:
- Deferment of repayments for 3 months (+3)
- Interest will be capitalised during this period
- The deferred repayments will be added to the loan term.
Features:
- Repayments can be deferred for up to 6 months
- Option to switch existing variable rate to a fixed rate.
- Interest will be capitalised during this period.
Features:
- Deferment of repayments for 3 months (+3)
- For variable home loan customers, the standard variable home loan rate will be decreased, effective 27 March 2020.
- Interest will be capitalised during this period
- The deferred repayments will be added to the loan term or elect to increase repayments to catch up.
Features:
- Repayments can be deferred for up to 6 months
- Options of changing to interest-only repayments instead of principal and interest repayments over an agreed time period.
- Option of reducing repayments or accessing funds through a redraw facility if ahead.
- The deferred interest will be capitalised.
Features:<
- Deferment of repayments for 3 months (+3)
- Option to switch to Interest Only repayments for an initial period of three months
- Hardship application for waiver of other fees and charges related to non-payment.
Features:
- Deferment of repayments for 3 months (+3)
- For variable home loans, any redraw balance above the “held” amount can still be accessed during the payment pause period.
- Interest will be capitalised during this period.
Features:
- Deferment of repayments for 3 months (+3)
- Option of reducing repayments or accessing funds through a redraw facility if ahead.
- The deferred interest will be capitalised.
Features:
- Repayments can be deferred for up to 6 months
- From 30 March 2020, new 1-, 2- and 3-year fixed home loan interest rates will be cut.
- Interest will be capitalised during this period.
Tax incentives
The government is working on a range of tax relief packages, including land tax and negative gearing, but details have not been announced to date.
One thing that has been made clear is that landlords who support tenants in financial distress because of coronavirus will be offered land tax relief. This is likely be offered as a shared cost of 50/50 with the landlord in any rent reduction of 25% or over (capped at $1,300 per quarter), although it is up to the states and territories to enact this initiative.
Landlord insurance considerations
Landlord insurance may cover loss of rent or rental defaults, but this will depend on your insurer. You should review your policy to determine if losses are covered in the case of a pandemic.
Many policies state that a claim is only paid where a tenant is evicted or terminated by the tribunal, or if they default on payments after vacating without notice.
Again, check your policy and talk to your insurer or insurance broker to be clear on your coverage and options.
Consult your property manager before making a move
Having a property manager is a great comfort at this time as part of their role is to keep on top of your rights and obligations, and to protect your interests when it comes to the tenancy of your property.
If you have any concerns about the security of your rental income, or would like to walk through your options with our team, please Contact Us and have a chat.