There is no arguing that Covid-19 has had a massive impact on each and every single person.
Since mid March I have been catching up with clients and people who have either lost their job, been forced to close their business or are just plain worried about how they can keep their cash flow going when their income is slowing or stopped.
The good news is, there are some things you can do now, to help ease your cash flow and at the very least, give you a little piece of mind to know that you have a plan in place when or if it comes down to it.
1. Check your rate
It may seem obvious but I can’t stress enough that no is the time (if you haven’t done so already) to look at what interest rate you are on and if there is some room to save some money.
I had a client send me their home loan statement just today and the interest rate on his statement was 7.74%. When I pointed this out to him his response was ‘yeah, but I don’t owe much’
Whilst this is true, his balance was just hovering around the $150 000.00 which is a lot of money but in Home loan terms these days is what I’d consider a small balance.
I did the math to show my client, based on his current interest rate he will be charged approximately $11 610 interest in the coming 12 months. If we were to negotiate the interest rate on his loan and get it down to a more reasonable rate, perhaps 2.79% then he will pay approximately $4185 interest.
That’s a saving of $7 425 in the first year. This savings can be paid into the home loan (saving him more interest in the coming years) or, help to lower his home loan repayments should his income be effected by Covid-19.
2. Repayment Holiday
Across the board all lenders and banks have offered a ‘repayment holiday’ to their clients who are already affected by Covid-19 and this can really help with your cash flow.
There are some things to consider before you contact your lender and ask for a holiday…
Although it sounds like a gift, your lender not asking you to pay your home loan for 3 to 6 months it’s important to understand how it works and what you need to do to protect your credit rating.
Typically a repayment holiday is done through a lenders ‘hardships’ team, and, they will record a not on your credit file which shows you did not make that monthly payment. This means down the track, if you were to apply for a loan in the future, your credit file will tell the new lender there was a period of time you didn’t (and couldn’t) make your loan repayments.
All lenders have agreed, if you are going on a repayment holiday because you are affected from Covid-19, they will not record this on your credit file and the missing repayments will be noted as a R on your credit file (R as in ‘not recorded’)
What I am suggesting to all my clients is to keep details notes on all of your correspondence back and forth with your lender and ensure you confirm with them (and record the name, date and time of the person you talk to) that this will not negatively affect your credit file.
So how does a repayment holiday work?
The lender will effectively put you on interest only payments and they will compound the interest payments to the loan. This means that in the short term, you will free up some money for cash flow but in the long term, you will have a higher loan balance after the 3-6 months and you will likely pay additional interest.
3. Know your Budget
Naturally the finance nerd will be talking about budgeting but I can’t stress how important it is to not only have a budget in place, but to review it at a time like now.
Not only will having a budget give you some piece of mind around what expenses you have going out each month but it may highlight some areas of your budget that you can cut back or eliminate.
If you would like a kick start to get on top of your Budget, you can join the 5 day budgeting challenge starting at the end of April, simply join the face book group here… https://www.facebook.com/groups/922166251537012/
In Summary, the top three things you can consider now to help ease your cash flow is, checking the interest rates on all your loans and requesting a discount from your lender, consider a Repayment holiday and ensure you keep records of your correspondence and finally, get to know your Budget.
If you would like to discuss your personal situation or you have a question about your finances you can book an appointment with me here https://calendly.com/360mortgagesolutions/home-loan-review or you can phone me on 0412 862 811.
Take care and stay home.