Loan repayment freeze applications

As the lockdown and pandemic drags on, the impact on most of us as investment property owners will also deepen. In our situation, we have a tenant paying half rent for one property and another tanant ended their lease because he have lost his job in the hospitality industry. I think things will definitely get worst before it gets better. I am seriously considering interest freeze for our investment loans. I am wondering if any members who have done this recently and if so please share your experience of apply for it and the outcomes. Thanks

 

There are no interest freezes. Only repayment freeze with interest still incurred and added to the loan.

 

I'm also curious about the impact on future serviceability assessment or credit score. Would banks look at your profile differently if they see you applied for this? Would banks be able to see this history at all?

 

"It has now been agreed that any Australian who is granted a deferral on loan repayments on their mortgage or other credit products, such as a credit card, will not have their credit rating affected as a result of that deferral (provided they were up to date with repayments prior to COVID-19)"

 

I wouldn’t freeze unless you absolutely had no savings. It’s like a credit card you just end up with more debt on interest

 

Not necessarily. It could be an opportunity to build up excess funds in the offset account on the main residence - saving interest and increasing deductions..
Tax advice suggested.

 

Ah ok interesting.

 

My wife is actually handling the hardship calls for a bank. You have to use savings, redraws and overdraws first before hardship applies. They can also see if you have dumped cash out of offsets too so don't both.
If you are still employed, your renter moves out and you have no saving then hardship is possible.
Interest gets capitalized at the end of the time period and you can call back if you do in fact reach the hardship conditions.

 

Which bank?

 

redraws? So potentially stuff up your tax deductibility or cause an accounting nightmare?

 

Not really cause an accounting nightmare. In my experience, a split loan takes an extra fifteen minutes per annum at the accountant's office. Besides, a small accounting inconvenience certainly beats having to sell one of your properties at a fire sale due to not meeting your repayment responsibilities.

 

Have you gone to YOUR bank's website to find out their requirements? Have you reread your loan documents and PDS lately?

I suspect it will be all of them - it is normal banking protocol to expect a customer to use their savings and redraw facilities when necessary. That is what "getting ahead on your repayments" allows us to do in an emergency.

 

A redraw facility doesn't mean it is a split loan?

 

You are correct, a redraw is not a split. However the reason you redraw would be dealt with in the same way a split is dealt with at tax time. For tax deductibility, the reason to split, redraw or refinance must be related to the investment purposes. Should you require this cash to use for living expenses while you continue to repay your mortgage from income or savings, that may not be deductible. If you redraw to spend on the rates, insurance and other legitimate expenses for your IPs, then ......

The accountants on PC can respond tomorrow.

 

Sure if you redraw for non deductible purposes interest isn't deductible on that regardless of split loan or not but with a split loan you can keep the non deductible stuff separate so later you can pay all the non deductible stuff back first. Non split loan you mix the deductible and non deductible and cannot choose to pay off the non deductible first and will forever have a portion of non deductible debt to be worked out for the life of the loan.

 

I am not an accountant, but you are right that people just using redraw in this situation can stuff themselves up as it will result in a mixed purpose loan. Interest will need to be apportioned which will be difficult to work out, so best to split first. One way this could happen is pulling the redraw amount out into an offset account that contains other funds.

 

Thanks for all the responses, we have checked with our CBA manager and the requirements for the application. There's no where mentioning offset will be taking into account, maybe it is a grey area where no hard and fast rule can be applied.
We have a reasonable offset that could see us through for many months in the usual jobless scenario, but my wife have been made redundant and tenants are leaving, reducing rent and increasingly likely of refuse to pay rent, the fund could dry up fairly quickly.
Like @Terry_w said, would really like to minimise spending and building up accessible fund before s..t really hits the fan.

 

Didn't realise it was against the rules to ask questions out of curiosity.