COVID 19 UPDATE: Home loan relief | Small biz support | Time to refinance? | Tax breaks | Superannuation
There have been so many developments in the past few days regarding COVID-19 and here are the six most crucial updates for homeowners and business owners, and what help is available for you.
- You can pause your mortgage repayments
- Interest rates are tumbling – should you refinance?
- Can you switch repayments to interest-only?
- Banks pledge big bucks to small business
- ATO offers tax relief
- Government allows early access to super
Worried about your budget? You can pause your repayments
If you're struggling with your home loan repayments because of the coronavirus crisis, help is available. And the sooner you act, the more options you’ll have.
Banks and lenders across Australia have announced a range of relief measures for mortgage borrowers, including the deferral of repayments for up to six months
It's important to note that while your repayments are on hold, interest may still accrue, which means your repayments will increase once the pause period ends. Although not confirmed at this point, doing this may impact your credit score in the future.
Lenders are also offering relief to business customers, with measures such as:
- Repayment holidays for loans and credit cards
- Rate cuts
- Overdraft increases
- Extra funds set aside for unsecured borrowing
- Restructure and consolidation of existing loans
- Early access to term deposits
All lenders have hardship teams ready to help customers in tough times.
We suggest contacting your lender directly as some banks are offering six-month repayment deferrals on mortgages for customers impacted by coronavirus (COVID-19). Talk to your bank about how they can help you. The Australian Banking Association has a full list of the bank’s contact details here: https://www.ausbanking.org.au/campaigns/financial-hardship
Interest rates are tumbling – should you refinance?
The Reserve Bank of Australia has slashed official interest rates to record-low level at an emergency meeting last week. This was the second rate cut in March, seeing the cash rate drop 50 basis points in less than a month.
In response to the drops, many lenders failed to pass on the entire 50-point saving but almost all made significant reductions.
So now that rates are at an all-time low, is it a good time to find a better home loan?
The answer isn’t so black and white.
Borrowers with a lot of equity in their homes are well-placed to take advantage of these big rate cuts.
Other borrowers, though, might struggle to find savings, because valuers are being very conservative about property values, which means some people might find they have less than 20% equity in their home – making it hard to switch.
Switching your loan repayments to interest-only is another option
If your income has taken a hit due to the coronavirus crisis, you might be thinking of switching your home loan to interest-only. This would have pros and cons.
The main benefit of switching from principal-and-interest to interest-only repayments is that your repayments would be lower during the interest-only period.
However, switching to interest-only would also have drawbacks:
- You wouldn’t reduce your outstanding debt during the interest-only period
- You would pay more in interest over the life of the loan (although this might deliver tax benefits if you were an investor)
- You might not be prepared to revert to higher repayments once the interest-only period ended
- A switch to Interest Only is not as simple as a phone chat and will usually require a mini-assessment of your circumstances
Big banks support $20bn business loan guarantee
Announced on Sunday night, Australia’s biggest banks have thrown their support behind a new federal government plan to support the nation’s small and medium-sized businesses.
The government will guarantee 50% of new loans issued by eligible lenders to SMEs, with a pledge of $20 billion to support $40 billion in loans.
Three of the big four banks immediately announced concrete support for the government plan, with measures including:
- Extra funds made available for business loans
- Big rate cuts for unsecured business loans
- Bank staff proactively contacting businesses to offer support
The authorities have now unveiled $189 billion in stimulus, which is designed to help businesses stay afloat and keep Australians in work.
ATO offers tax relief for people & businesses
The Australian Taxation Office has promised relief measures to help those affected by COVID-19.
The ATO will “work with individuals experiencing financial hardship” and will “apply appropriate tax relief measures for serious and exceptional circumstances, such as where people cannot pay for food or accommodation”.
The tax office also offered support to coronavirus-affected businesses, with measures including:
- Tailored support plans
- Deferral of tax payments by up to six months
- Faster access to GST refunds
- Low-interest repayment plans for businesses with tax liabilities
Anyone impacted by COVID-19 can call the ATO’s emergency support infoline on 1800 806 218.
You can now get early access to your super – but beware
Individuals suffering from COVID-induced financial stress will be able to get early access to up to $20,000 of their superannuation.
Eligible individuals can apply online through myGov for access to:
- $10,000 of their superannuation before 1 July 2020
- $10,000 of their superannuation in the three months after 1 July 2020
These early withdrawals will be tax-free.
Eligible Australians include those who are unemployed or whose working hours have been reduced by at least 20% since 1 January 2020.
Sole traders will also be eligible if, since 1 January, their business has been suspended or they’ve had a reduction in turnover of 20% or more
However, early access to your precious retirement savings should usually be an absolute last resort. First, see if you can:
- Draw on other savings
- Access other government relief packages
- Tap into any equity you might have
The best person to speak with about these changes would be your financial advisor. If you’d like to speak to one of our mortgage brokers or financial specialists, click here.