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What you need to know about mortgage repayment holidays before you need to take one

With the unemployment rate forecast to reach a 26 year high, it's prudent to understand how to safeguard your mortgage and your credit history.

When making financial decisions it’s always important to be informed but at times like this, when we are already stretched by a daily information overload, it’s crucial to work through the details and prepare as much as possible to protect your financial future.

The last thing you want is to make a panicked decision which has long term consequences without seeking advice from an expert.

As COVID-19 impacts more sectors, more people face potential changes to their income. Taking a repayment holiday is one avenue available to borrowers who find themselves under strain and here are some insights into what you need to know now, in case you need to take a repayment holiday later.

1. You can’t get a repayment holiday if you’re already behind on your payments

What you need to do now: If you are among the lucky ones whose income has not yet changed as a result of COVID-19, try to set aside a cash buffer in case your income changes suddenly.

Many Australian households live paycheck to paycheck but if you can, save some cash now so you don’t fall into arrears while organising your repayment holiday or restructuring your loan should things change quickly.

2. It’s a good idea to refinance proactively before you need to activate a repayment holiday

What you need to do now: Now more than ever, it’s a good idea to negotiate the best interest rate and loan package - and that’s much easier to do while you’re in a strong financial position. If you do then need to take a repayment holiday down the track, you’ll accrue less interest during that period and be better off when you start making payments again.

Getting a better rate doesn’t necessarily mean switching lenders, it may be as simple as asking your bank if they can reduce your rate or waive your fees. If your lender is not coming to the table, ask a home loan specialist for help.

3. A repayment holiday will increase the amount of interest you pay over the life of your loan

What you need to do now: Do some scenario planning so you have a clear picture of your situation and options if your income changes.

Taking a repayment holiday means interest and fees will continue to build up during that three or six month period and in many cases the length of your loan will be extended. Depending on the stability of your income, you may find switching your loan to minimum or interest only repayments is a better way to go in the medium to long term.

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

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Tags: rba cash rate, reserve bank, interest rate, refinance, new purchase

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# Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
Lendi is a privately owned and operated Aussie business. Our mission is to provide Aussies with the right experience when choosing a home loan from our panel of lenders including ClickLoans, a related body corporate of Auscred Services. Although Lendi compares over 1600 products from over 35 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. While Lendi is 40% owned by founders and employees, we have also been supported by some great minority shareholders including Bailador, Macquarie Bank Ltd and a number of Australian sophisticated investors. We have an independent and founder led board.
WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years. Fees and charges apply. All applications are subject to assessment and lender approval. Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
EXAMPLE: This example is current as at 20th October 2016. A Click Loans Online Principal and Interest Loan of $150,000 over 25 years has monthly repayments of $767. This is calculated based on the interest rate of 3.69%, comparison rate of 3.69%, upfront fees of $0 and annual fees of $0.
IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria.
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