Repayment holidays: How do they work?

Discussion in 'Loans & Mortgage Brokers' started by spludgey, 20th Mar, 2020.

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  1. spludgey

    spludgey Well-Known Member

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    Some of the banks are offering repayment holidays for six months for Covid19 affected customers. But how do they work?

    Does it apply to both principal and interest payments?
    Does unpaid interest accrue?
    Are you having to pay interest on both the principal and the interest?
    Does the life of your loan get extended or do future payments increase, like if you take an IO term?
    Does this extend any IO or fixed period that you're on?
    Will it look unfavorable when applying for further loans down the road?
     
  2. Terry_w

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

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    They will capitalise interest. Same terms
     
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  3. HUGH72

    HUGH72 Well-Known Member

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    How would it work? The 8th wonder of the world, compound interest would kick in sending someone backwards for the next decade potentially.
    So generous on behalf of the banks;)
     
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  4. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    The arrangements apply to AFFECTED borrowers. They will tailor the result. Investors may get less. Those without jobs more. It's not a handout. It refers the problem with concessions in some cases. You must apply to get it. It's like the salvos. You queue up for food to find what you get.

    I must say I find so many questions offensive in seeking a benefit. Not a need. I hope those who need ask. Those who think it's a scheme to get benefits need to question their intent.
     
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  5. spludgey

    spludgey Well-Known Member

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    While I'm not currently affected, I think it's more than likely that I will be at some point, hence asking before it's required.
     
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  6. Beano

    Beano Well-Known Member

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    I would rather the banks offer a allowance to repay extra for six months for all customers.
    Off fixed term loans with no penalties.
    That would be a real benefit
     
  7. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    No. Investors can sell. Investors who are over extended will be smashed but nobody will act immediately but if it's prolonged they will. All concessions are need based not greed based. This is a fundamental of tax and wealth policy. Greed has clouded many views. Cashflow remains rule 1
     
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  8. spludgey

    spludgey Well-Known Member

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  9. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Anyone they or their mortgagee wants. People forgot the 80s
     
  10. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    No

    Free

    Lunch

    ta
    rolf
     
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  11. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Does it apply to both principal and interest payments?

    possibly

    Does unpaid interest accrue?

    yes - capped


    Are you having to pay interest on both the principal and the interest?

    yes, intererest on the capped interest

    Does the life of your loan get extended or do future payments increase, like if you take an IO term?

    Term dunna change, increase repayments post pause

    Does this extend any IO or fixed period that you're on?

    No

    Will it look unfavorable when applying for further loans down the road?


    unlikely
     
    Last edited by a moderator: 2nd Apr, 2020
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  12. The Y-man

    The Y-man Moderator Staff Member

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    What happens if the repayments take a holidays overseas and are unable to get back into australia? (quickly scurries away....)

    The Y-man
     
  13. Jamesaurus

    Jamesaurus Well-Known Member

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    Is it really the banks sacrificing some of their profit for a few quarters to minimise foreclosures?

    What about if a mortgage holder was also a bank shareholder and their dividends and capital value of the share are being eroded too- would this not balance out in some respects?

    Cheers
     
  14. berten

    berten Well-Known Member

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    Sounds like Solomon Lew is taking a holiday. Shutting all stores under premiere investments umbrella and standing down 9000 staff, refusing to pay rent.



    NoCookies | The Australian
     
  15. The Y-man

    The Y-man Moderator Staff Member

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    That is my current position (borrower and shareholder) - but from this discussion I am satisfied that the move will not result in sacrifice of profits - it will defer them for sure. However, just like a credit card bill that is not paid, the interest will be capitalised, so the borrower will owe more in the end, leading to potentially more profits for the bank over a longer time without driving the bank or the borrower into the ground.

    The Y-man
     
  16. Barny

    Barny Well-Known Member

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    Friend of mine advised yesterday that her ppor home loan(anz) has been frozen for 6months, no principal or interest repayments required and the life of the loan has been pushed back 6 months. No interest accrued.
    I called my bank (comm bank) and they advised it's a case by case scenario but my ppor loan can pause for 3 months but the interest is accrued and can be extended for another 3 months if need be. Was also advised that in two weeks the rules might change and do the same as anz.

    Can you inigane how many distressed sales will hit the market soonish if banks don't follow overseas pauses on P&i, I'm very confident it will happen soon.
     
  17. Terry_w

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

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    I am inclined to think this person may be misunderstanding things. I haven't heard of this happening, but it would be good if it did.
     
  18. paulF

    paulF Well-Known Member

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    Why does this apply to investors and not renters? How is it a free lunch ?

    Everyone is sympathising with renters stating that the Virus and current financial hardship is no fault of their own while investors are being vilified for some reason. Is the virus the investors fault?

    I understand that their is risk with investing but their needs to be fairness on both ends.
     
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  19. Barny

    Barny Well-Known Member

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    I said the same thing and questioned her. She's addimt it's correct.
     
  20. Terry_w

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

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    Do you know which bank?