Is it worthwhile deferring loans repayments?

Discussion in 'Loans & Mortgage Brokers' started by Jmillar, 5th Apr, 2020.

Join Australia's most dynamic and respected property investment community
  1. Jmillar

    Jmillar Well-Known Member

    Joined:
    27th Jun, 2015
    Posts:
    584
    Location:
    Sydney
    My work is slowing at the moment and probably will be for 3-6 months, and given I'm on commission this means my pay is severely affected. I can manage my mortgage payments as long as my tenants keep paying rent and no major issues pop up, but I wondered if it's worthwhile applying for deferment of payments for up to 6 months just to ensure I have a buffer and I can sleep at night.

    I have about $1.4m worth of loans with CBA fixed @ 4.09% IO. They told me all their customers are eligible (not sure if this is entirely correct, surely you have to meet certain criteria) and that my fixed loan period would not be extended.

    Deferring for 6 months means I wouldn't have to come up with ~$30k worth of interest. The fixed loans expire in October so they would be variable by the time I have to start paying again so I'm assuming the rate will be around 3% or less, or I may consider fixing for a couple years at this time. But assuming 3%, it means my interest payments will increase by $900 pa which is easily absorbable over my portfolio, especially given my total payments will come down by about $14k pa at this time anyway, assuming the rate does drop 1%.

    I was thinking of utilising the deferment offer to keep a buffer. If I don't end up needing the funds, I could just keep them in an offset account, or invest them and earn a lot more than 3% elsewhere. For eg, I'm fairly confident that buying some blue chip shares at the moment would return a lot more than 3% in the next year. Seems like a no brainer really.

    Is there anything I'm mising here?
     
  2. JohnPropChat

    JohnPropChat Well-Known Member

    Joined:
    10th Sep, 2015
    Posts:
    2,188
    Location:
    Middle Earth
    I think the operative word is "need". if you need it then by all means apply for a deferral but if you don't just yet then maybe wait a bit more ...

    A lot comes to the amount of cash buffers you have. If all you have is a month's worth and only need the tiniest thing to go wrong before you can't pay the mortgage then I say apply straight away and sleep better at night.
     
    [email protected] likes this.
  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    15th Aug, 2005
    Posts:
    7,534
    Location:
    Gold Coast
    it can be a good option for many in your type of scenario, because u can clearly demonstrate need.

    For those with income security we are suggesting ( strongly) that we pay our mortgages and rents

    ta
    rolf
     
    mrdobalina likes this.
  4. Simon_H

    Simon_H Member

    Joined:
    20th Apr, 2018
    Posts:
    8
    Location:
    Sydney
    @Jmiller I seem to think the same as you. I have a similar size mortgage and was also thinking for pausing my loan payments, not because I have too but more as a buffer. This money would stay in my offset account, therefore no additional interest would be accrued. This could be used to invest in shares which as you rightly point out will return more than 3% when the time is right.

    I also want to know the downside of this?
     
    Marg4000 likes this.
  5. hieund85

    hieund85 Well-Known Member

    Joined:
    16th Nov, 2017
    Posts:
    927
    Location:
    Melbourne
    Do you need it or just want it? Similar to the question about tenants, do they need or just want rent reduction/freeze? One can say that as a renter, I do not need to have rent reduced because my income has not been impacted but I want it to build up my buffer (or buy a new car, new TV, etc).
     
  6. Simon_H

    Simon_H Member

    Joined:
    20th Apr, 2018
    Posts:
    8
    Location:
    Sydney
    I guess I "want", but it's what you do with it that counts. If I go out to buy the new car or TV it will cost me more on deferred interest, this is stupid in my view. But if I keep it in my offset the impact is nil and if I go on to invest it in Shares I'm confident the return over 12 months will be greater than 4%.