If you’ve lost your job and you’re not sure whether to hit pause on your mortgage repayments, or you’ve got a loan pre-approval but you’ve heard your lender may do a backflip, one of the best people to guide you through the finance maze is a mortgage broker.
Not only are brokers receiving daily updates from lenders on policy changes and relief packages available to borrowers, the best brokers know there’s not a one-size-fits-all solution as COVID-19 creates economic and emotional havoc.
“We’ve got customers in all sorts of financial situations right now,” says uno home loans chief executive Anthony Justice. “We can help you understand what your options are, what the implications of a payment holiday are. A broker can help you think through and work through those options.”
What to do if your income has taken a hit
Before you take up your bank’s offer to temporarily freeze your mortgage repayments, it’s important to be fully aware of the implications.
“First up I will say that while it’s tempting to take banks up on their offer of a home loan repayment freeze, my general advice is to be cautious and do what you can to keep your loan repayments up for as long as possible,” says broker and founder of Blackk Finance Victor Kalinowski.
Kalinowski says a broker can walk you through other options, which might include switching to the minimum required payment, reverting to interest-only payments and consolidating other debts at higher interest rates into your home loan to reduce your overall repayments.
You could also redraw advanced repayments or use savings to cover your loan.
“People will often feel bad about dipping into funds reserved for an emergency, but if there’s ever an emergency, then this is it,” he says. “That’s what a buffer is for, so don’t feel bad. When things return to normal, you can build up your buffer again.”
For those without savings or for whom these measures aren’t applicable, your broker can help explain your bank’s relief packages. Most lenders are offering three or six-month payment deferrals and nearly every lender will add the accrued, unpaid interest to your loan balance, increasing the amount left to be paid when you come off the freeze.
Should you refinance?
Marc Barlow, a mortgage broker with mortgagebrokermelbourne.net.au, says those who have been affected by job losses, redundancies and step-downs are usually best to negotiate with their existing lender rather than jumping ship to a new lender.
“Our first port of call is to ask the lender for a better rate to retain the client,” he says. “If they’re not prepared to come to the party, we can look at switching lenders.”
Barlow says a broker can do the sums to ensure a refinance is your best option.
“Quite often people jump into a refinance without doing the groundwork to determine if that will save them any money, so we do our due diligence on that,” he says. “We work hard to make sure the customer doesn’t have to do much work.”
Barlow agrees a good broker will use their experience to talk to your existing lender to see if they’ll give you a better deal before jumping through hoops with a new lender.
Should you fix your interest rates?
Fixed interest rates are temptingly low, with new offers available for shorter-term, one or two-year fixed periods.
Barlow says he has clients on variable rates upwards of 2.8 per cent who are considering a change to fixed rates as low as 2.2 per cent.
“That’s a way of being able to save interest without deferring any repayments,” he says. “It gives clients peace of mind if interest rates suddenly start to rise.
“Bank funding costs are actually starting to rise, which sometimes means fixed rates could be on the up.”
“If a bank is offering a low fixed rate, they also think they’re going to do well out of that financially.”
However, Barlow says he is not aware of any lenders offering to waive the break costs on existing fixed rate loans, so those locked in to higher fixed rates are probably best to stick with their current loan arrangements.
Kalinowski also advises borrowers to spend time talking with their broker about the pros and cons of fixing rates.
“Our thinking when it comes to fixing loans is to remember that banks are not a charity,” he says. “If a bank is offering a low fixed rate, they also think they’re going to do well out of that financially.
“It’s very difficult to beat the bank. I’ve fixed an interest rate three times in my life and each time I could’ve done better with variable rates. So fixing is more to suit your personal situation, if that helps you sleep at night.”
Can you still get a home loan?
Justice says if you’ve lost your main source of income, it will be challenging to get finance.
“We are seeing lenders changing their lending policy and, with the unfolding situation, they’re taking a more conservative approach to comply with responsible lending,” he says.
For those with stable employment, a broker has easy access to the lending policies of all the lenders on their panel and can help customers navigate options and help you get a good deal.
“We know which lenders have got appetites for which circumstances,” Justice says. “New applications have slowed down, but they are still happening so it’s definitely worth exploring what options you’ve got available to you.”
Barlow says if your household has been reduced from two incomes to one, there may still be lenders willing to provide finance.
“I had clients last week who had been ditched by their current lender after being pre-approved,” he said. “They had already bought. He worked for a gym and they phoned her and said unfortunately we can no longer assist you.
“She got in touch with us and this was actually quite a straightforward proposition for a mortgage broker. She was still gainfully employed, and we were able to determine that even without his income, we could find a mainstream lender who was able to use 100 per cent of her tax-free income.”
Barlow says the market conditions resulting from the coronavirus pandemic may also present some good deals for opportunistic buyers.
“There’s a window for people who are in a strong employment situation with a good deposit,” he says.
Kalinowski says if you were keen to buy before the virus knocked the economy for six and you’re feeling stressed, start by talking your situation over with your broker.
“You can use them as a sounding board,” he says. “It’s better to talk to your broker or the bank informally before you submit an application. That way you can protect your credit rating and your heart, because you won’t go out and fall in love with a property and then have the bank say there’s no chance.”