It’s great that the banks are offering some options to people with mortgages, but some of the important detail within the COVID-19 financial support packages has not yet been made available.
As mortgage advisers that makes it very difficult to offer advice, and as a person with a mortgage it also means we are being asked to make decisions with limited information.
For most Kiwis our mortgages are our largest financial commitment.
We do not want to make costly mistakes!
What You Should Know Before Applying For Support
Since the Government announced that the banks would be offering mortgage holidays we have been trying to get the detail from them so we could provide useful advice.
Unfortunately the detail from the banks has been minimal and we are left with little to base our advice on. Of course we know how mortgage holidays typically work and have published that already in our article named “How Mortgage Holidays Work” an since then we have also published an article on the “Three Good Alternatives To Taking A Mortgage Holiday” as well.
But while we are still waiting for the banks to provide information we have seen them start to contact customers and start to process mortgage holidays.
The banks have set up 0800 numbers, email addresses and forms on their websites and have also started writing to customers. They are asking people to apply directly with the banks and have also advised mortgage brokers (advisers) that this is the best way to manage the requests.
What Are The Alternatives?
Before you decide to take a mortgage holiday you should consider the other options.
- Restructure your lending = there are many ways that you can structure your mortgage and often this can reduce the repayments too.
- Switch to interest only – this is a very good option of reducing your repayments.
- Refinance to take advantage of lower rates – you may think that your bank is looking after you but they are looking after the bank. If your bank were really looking after you then they may offer to lower your interest rates which helps you financially both immediately and into the future. We have one bank that is open for business and currently offering a 1-year fixed rate of 2.89% and a 2-year rate of 2.99%
- Mortgage Holidays – we know that some people will need a mortgage holiday, and if that is the case then you need to ensure that you are informed of the consequences. You need to understand that you will be paying more when the “holiday” comes to an end unless you can either extend the loan term or refix a loan at a lower interest rate.
Read more about the three alternatives to a mortgage holiday.
Whatever you decide you should always ask your bank to provide you answers to the questions so you know that you are not making an expensive mistake.
Questions You NEED To Ask Your Bank
There are a number of questions that everyone needs to be asking their banks and some others are more relevant to specific situations.
If you restructure your lending or refinance then as mortgage advisers we can process this for you and therefore provide advice.
If you are switching to interest only or seeking a mortgage holiday then the banks want you to approach them directly, and without being fully informed it is difficult to offer proper advice.
The criteria will be different with each bank and from our inquiries the banks are not all yet sure what they will be able to do.
You should always ask your bank these questions in writing via email and ensure that you get and understand the answers to them before committing to a mortgage holiday.
Some BIG unanswered questions:
- If I take a mortgage holiday what will my repayments be when they start up again in 6-months?
- Can I cancel my mortgage holiday and restart my payments early and without cost?
- Does my fixed loan have the option to extend the loan term to keep the repayments the same?
- When the cost of the mortgage holiday is added to my lending, if it pushes the lending over 80% of the property value would I be charged the low equity margin?
- Will you reassess my lending based on the current values at the time when the mortgage holiday finishes?
To help you ask the relevant questions we have created a worksheet that you can download.
Of course you are always welcome to contact us too and we will provide whatever advice we can.