COVID-19 - Managing Cash Flow During Uncertainty and Crisis

We are in uncharted waters, and there is nothing like COVID-19 that the world has previously seen.

There is huge amounts of uncertainty, and it is and will impact all Australians in some shape or form.

Whilst for corporate Australia and office-based staff, there is a possibility of being able to work from home. However, not all jobs lend to this.

This is bound to have a ‘domino’ effect on all industries.

And potentially there will be redundancies, job losses and lost livelihood across industries.

It’s important to consider what you can do for yourself and your family during this time of uncertainty, so you can get through this phase with peace of mind. A few points to consider.

1. Negotiate interest rate with your existing bank

You can have your interest rate reviewed.

As a general rule, this should be arranged by your banker or broker to review and request new interest rate discounts from the bank. It is up to lender discretion on whether they would provide further discount on your existing interest rate.

2. Take money out from re-draw and put in an offset account

When the money is in the redraw, the bank controls the money and re-draw accounts could be inflexible.

Where possible, redraw the money and park it into an offset account.

3. Use offset accounts effectively

People often use multiple different accounts for their various expenses. Which means they may not be holding all their savings in one offset account.

The impact of this is you miss out interest saving that you would have had had you parked all savings in the offset account, and also used the offset account as your everyday transaction account.

Some banks allow you to have multiple offset accounts linked to the same loan. This comes in handy especially where you prefer to manage your cash using different accounts for various expenses.

At the same time, you will be able to minimise interest on your home loan.

4. Manage Cash flow through refinance strategies

Consider refinancing your loan to a longer term, so you can reduce your repayments. For example, your remaining loan term may be 25 years, but you may refinance it out to be 30 years.

Alternatively, to reduce the repayment amount further, you can look to refinance to an “Interest Only loan” term for a short period of time. This will have the impact of you only making interest repayments.

NOTE: These refinance measures are good as temporary measures, and should only be taken out once you have understood the pros and cons of the approaches, and how it applies to your specific circumstances.

Also, Interest Only interest rates are higher than Principal & Interest rates.

5. Adjust to Minimum repayments

As interest rates drop, banks do not tend to automatically reduce the repayment to reflect the new interest rate (the interest is calculated on the new rate, but principal repayment is not adjusted).

You can call your lender to adjust the repayment amount to minimum repayments required to be made.

6. Consolidate Debts

If you have debts such as personal loan, car loan or credit cards, these can be consolidated with your home loan, provided you have the equity and the borrowing capacity.

Whilst it is recommended that you continue paying off these commitments at the same rate as you were originally or a faster rate, this may provide you with cash flow relief in the short term.

7. Access equity in your property

Have your broker arrange for a valuation of your property, so you can potentially access equity in your property for buffers.

8. Reach out to a broker

If you are concerned, reach out to a broker to determine the best suitable way for you to move forward.

 

If isolation measures are introduced lenders are likely to need to address a moratorium on repayments of one month to ALL loans and even creditcards. Its possible that all loans may have a concession given automatically as lenders will be under RBA and Treasury guidance. Lenders couldnt cope with a surge of enquiries and it would destablise and may be a element of stimulus measures. The Government may even act to guarantee lenders against loss for that period.

For those less fortunate who may lose income earning then more active measuers will need to be explored. Efforts to seek Centrelkink benefits may also avoid the problems associated with borrowing money to live and buy essentials