Deferring mortgage payments due to COVID-19

Discussion in 'Investment Strategy' started by albanga, 27th Mar, 2020.

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  1. mrdobalina

    mrdobalina Well-Known Member

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    there's more to life than working
    I'm emotionally distressed by all the opportunities coming up in the equities market to make money :(
     
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  2. albanga

    albanga Well-Known Member

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    I say taboo because it’s purpose is to help those in financial hardship not to take advantage and use it for other opportunities.

    But as others have said the bank are also winning because the interest is capatilising anyway.

    Food for thought.
     
  3. Lacrim

    Lacrim Well-Known Member

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    I'm still struggling to work out if this helps financially. Partner has recently been affected by C19 so I 'qualify'. I can't see the benefit or (harm) taking it up. Just confused and intrigued at the same time.
     
  4. The Y-man

    The Y-man Moderator Staff Member

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    (Intended) Benefit: if you are pressed for cash flow - i.e. tenants gone bust, not paying rent, hot water system blows up, your rates payment are due next week, and you have $100 in your bank account.

    Harm: It's like taking out extra loan for the interest you are not paying now - so you will pay "interest on interest". Another way to look at it is that you have simply borrowed more money (to pay for the interest you would have paid)

    The Y-man
     
  5. Lacrim

    Lacrim Well-Known Member

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    Thanks.

    If I'm on say a 30 year loan term as of now, will the loan term be 25 yrs 6 months after the 6 month grace period (and repayments increased) or will it be 30 yrs to pay out the loan after the 6 months?
     
  6. The Y-man

    The Y-man Moderator Staff Member

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    What I am reading on the bank website(s) is that it will be 25yr 6 mth and you will have higher repayments to "catch up".

    The Y-man
     
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  7. croseks

    croseks Well-Known Member

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    Would taking the deferment impact your credit file or any future borrowings in any way? Because I assume you will need to apply for financial hardship?

    I am not 100% sure of how it works, so please let me know if you understand it better
     
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  8. Joynz

    Joynz Well-Known Member

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    The reason women on maternity leave take a repayment holiday is because their income is reduced during the leave (I.e. they have actually been economically affected).

    The OP was suggesting it be used even by those not affected economically.

    For example, I have not been affected economically and am unlikely to be affected unless my tenants stop paying rent. Even then, I am years ahead with my mortgage (via offset funds) and, though I would lose income, it would not prevent my mortgage payments.

    My concern would be that, through someone claiming this benefit dishonestly, it might be less available to others who are more needy.

    People seem to think there is no harm as the banks get it back (and more) in the end. And maybe that’s true - but wouldn’t it affect cash flow for the banks?

    I’d be surprised if there isn’t some proof required.
     
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  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    No, some have indicated no effect.
     
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  10. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I am sure everyone is affected some how.
     
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  11. Proprieta

    Proprieta Member

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    I understand a number of banks do carry out some level of queries, such as confirming that your salary or business income has dropped by 20% or more to be eligible. I am not sure if they require proof of that, as sometimes it might be hard to demonstrate with documentation.

    If you are eligible for the 3 month deferral of loan repayments, the interest will be capitalised over the 3 months. That is interest will continue to be accrued each month but not charged. At the end of the 3 months, you may be entitled to a further 3 months.

    Once the deferral period has ended, the interest that has capitalised will be added to your loan as a lump sum. Your loan term will remain the same and your loan repayments will be recalculated based on the new loan balance and the remaining term.

    Yes there is a benefit to taking up the offer as it will assist in both cashflow and liquidity. If you have been impacted by the economic affects of the pandemic, then you can use this cash to cover your living expenses until such time as you can hopefully get back to the income you were on before.

    Even if you don't need the cashflow now, I would put the funds aside in either an offset account (best option) or a savings account, that way you build a bit of a buffer. Everyone should have a minimum 3 months living expenses in cash. And then if all works out well for you, then you can always pay it all back in to your loan as a lump sum prior to your new loan repayments are calculated.

    With the addition of the lower interest rates, then you will still have a lower repayment then you were on say 12months ago.

    If you are thinking you may need to do this, I would get on to your bank now as they are being inundated with requests so it wont happen immediately.

    Wishing everyone all the best in a tough environment. Remember that there is always people there to help.
     
  12. Joynz

    Joynz Well-Known Member

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    But not necessarily economically.
     
  13. Silverson

    Silverson Well-Known Member

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    Again like everything, you need to be careful your not dancing too close to the fire with flammables in your pocket.
    All well and good to say I’ll defer payments and instead of making repayments use that money to take up opportunities in the share market. In theory it’s a fantastic idea, if the markets continue on in this highly volatile manner and prices slump another 50% the opportunity you thought you took turned out to be the exact opposite.

    Markets can stay irrational longer than you can remain solvent - W.B
     
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  14. Realist35

    Realist35 Well-Known Member

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    What type of evidence is required by CBA?

    If my partner loss her job, would that be a sufficient reason?
     
  15. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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  16. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    There are many catches to deferral mechanisms. A newly drawn loan is a good example. The borrower may have negative 80% lvr and no redraw and the term is maxed. The bank will require that the term not increase and repayments after 3 months clear the deferred unpaid balance through the first 3 months. This could double the repayments in July Aug and Sept. And lead to default and a serious credit and mortgage issue

    Borrowers with lesser terms, redraw and valuation gaps will fare far better
     
  17. Omnidragon

    Omnidragon Well-Known Member

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    If you don't need to take the deferment, don't take it.
     
    Last edited by a moderator: 3rd Apr, 2020
  18. Bris developer

    Bris developer Well-Known Member

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    Sorry I have not had time to read through the entire thread.
    My question is Why not simply request deferrment across all your loans for now

    I believe many highly levered landlords will hit the 3/6 month mark and have no way to pay the catch up interest

    the govt will then force the banks to forgive everyones interest for the past 3 months

    so there is no point of diligently paying interest, rates, land tax at this point until the situation clears up. thoughts?

    It is totally ridiculous that landlord should pay 3-4% pa interest to a bank who is now borrowing at 0.25%pa .. when heavy handed govt policy has caused tenants to en masse refuse to pay rent or be unable to pay rent
     
  19. Bris developer

    Bris developer Well-Known Member

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    MY POINT BEING UNTIL TENANTS GET IN A POSITION TO GENERATE INCOME AGAIN, THE LANDLORD'S DEBT BURDEN SHOULD BE WAIVED or PAID FOR BY THE GOVT
     
  20. Tifoso

    Tifoso Well-Known Member

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    I just got an email from CBA on my business vehicle finance. Without me asking they are deferring it by 3 months with option to extend another 3 months. I'll continue to incur interest and capitalise. BUT, the point is, no questions asked, the default position from the bank was to offer it. I have to "Opt Out" if I don't want to accept.
     
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