Australians should review their home loans now to ensure they are getting the best deal possible.
Australians should review their home loans now to ensure they are getting the best deal possible.

Mortgage customers urged to check their loans

Many cash-strapped households looking for immediate ways to alleviate financial pressure have rushed to review their home loans.

Despite the fact mortgage borrowing has never been cheaper - some interest rate deals are in the low 2 per cent range - tens of thousands of borrowers have already paused or dropped the amount they need to repay as a result of the COVID-19 pandemic.

With the average mortgage now sitting at about $500,000 and the economic impacts of the coronavirus continuing to spread, it's vital borrowers reassess their financial position.

ANZ's head of home loans, John Campbell, said: "A lot of people don't know what their options are right now."

While banks are strongly advising customers to contact their bank to seek guidance, it's advised they do this through online channels to avoid lengthy waiting times on the phone.

In recent weeks call centres have been unable to keep up with the inundation of queries by concerned customers.

OFFSET/REDRAW ACCOUNTS

During the historically low interest rates period many borrowers have managed to scale ahead of their loans.

Many have built up decent-sized chunks of cash in their offset accounts - a daily account linked to their home loan - or redraw accounts, where excess cash overpaid on the loan sits and can be drawn back any time.

Borrowers should be checking to see if they have cash sitting in on offset or redraw account they may need to use during the coming months.
Borrowers should be checking to see if they have cash sitting in on offset or redraw account they may need to use during the coming months.

ANZ's Mr Campbell said it was a good idea for borrowers to check up on what funds they had available because it could be an option to draw on these if they were facing financial difficulty.

"You should look at your internet banking, look at if you have any money in your offset or redraw account," he said.

"If you need to access that cash immediately that is by far the quickest way to do it."

Latest Reserve Bank of Australia statistics showed borrowers are, on average, 2.5 years ahead of their mortgage repayments, including cash held in offset and redraw accounts.

Borrowers should be mindful though if they take money out of their redraw facility it will push up the total amount owing on their loan balance.

And if money is withdrawn from a redraw account it will also push up the total interest paid on the debt.

MINIMUM REPAYMENTS

Since June last year the RBA has cut the cash rate five times, bringing it down to just 0.25 per cent.

This has also resulted in falls to both fixed and variable rate loan offers.

Some banks including ANZ have kept customers who are on variable rate loans repayments at a higher level.

This means when rates have fallen their repayments have stayed the same level which has allowed them to scale ahead of their mortgages.

Mr Campbell said for borrowers looking to free up some more cash, dropping their regular repayments down to the minimum repayment could be worth considering.

"Have a look at what you are paying today, what the minimum repayment amount is and if you want to bring that amount down to the minimum repayment that's another option available to you," he said.

"A lot of people aren't aware they are paying more than they use.

"It's a good thing to be paying more than you should especially at times like this when it creates a bit of a buffer."

Mr Campbell said ANZ had received calls from "many thousands of customers" who have opted to reduce their repayments to the minimum repayment.

MORTGAGE DEFERRALS

Financial institutions are now offering customers anywhere from three- to six-month deferrals on their mortgage repayments if they are impacted by COVID-19.

The Australian Banking Association's chief executive officer Anna Bligh said "they are starting to get hundreds of thousands of calls" to do this.

Australian Banking Association’s chief executive officer Anna Bligh said banks had been inundated by customers requesting mortgage deferrals during the coronavirus pandemic.
Australian Banking Association’s chief executive officer Anna Bligh said banks had been inundated by customers requesting mortgage deferrals during the coronavirus pandemic.

"For those mortgage holders who are worried today, if you've lost your job, you've had your hours cut, if you are having any of these impacts to make it harder to pay your mortgage … there's relief available taking away the weight of worry of loan repayments off your shoulders," she said.

"If banks can take this off their shoulders it helps to make the idea of hibernation not only possible but affordable."

But be aware, while the repayments are paused during this period the interest charges are not.

They will added onto the loan balance once repayments restart and can either be paid off over the remaining duration of the loan or the loan period could be extended.

 

 

INTEREST RATES

Home loan mortgage rates have never been cheaper and financial comparison website RateCity's spokeswoman Sally Tindall said borrowers "are in the driver's seat when it comes to rates".

"The world might be in financial turmoil but banks are still willing to negotiate with variable rate customers who have a good track record at meeting their mortgage repayments - especially if they think you might take your business elsewhere," she said.

"Before you call, check what your bank is offering new customers for the same home loan, but also find out what other lenders are likely to offer you."

She said this would give you some ammunition to negotiate with your bank.

Many borrowers use a mortgage broker to help get them a competitive deal.
Many borrowers use a mortgage broker to help get them a competitive deal.

According to RateCity's database, the cheapest owner-occupier variable home loan rate offer is with Well Home Loans at just 2.09 per cent.

The cheapest three-year fixed rate deals are with Homestart Finance and Reduce Home Loans at just 2.44 per cent.

But Ms Tindall warned borrowers to be careful before fixing their home loan.

"Fixed home loans are usually a lot less flexible - often with limits on extra repayments, no offset accounts and costly fees if you try and break your loan before the fixed period comes to an end," she said.

sophie.elsworth@news.com.au

@sophieelsworth

Originally published as Mortgage customers urged to check their loans



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