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Mortgage, loan and insurance FAQs in the time of COVID-19

I don’t have to tell you we are living in unprecedented times. Things are moving fast in this new COVID-world so I want to assure you that I am here to help and support you.  

Banks, governments and advisers like me appreciate that this is a once-in-a-lifetime event and everyone is jumping in to do their bit.

As New Zealand moved to alert level 4 for coronavirus most businesses revenue will be taking a hit. In response, the Government has announced a series of multibillion dollar support measures for business and households. 

So let’s break down how the current political and financial climate may impact you - and how I can help.

Business with me:

Questions? Plans? Call me, Skype me, or we can Zoom. I’m fully digitally enabled, so every part of the process can be done online and over phone, without a face-to-face appointment.

If you are in a position to purchase a home or arrange insurance then I use a virtual meeting room called SuiteBox, which records the entire meeting and allows us (up to 3 parties) to view and sign documents that I upload. I’m happy to arrange a meeting with you if you want to see how it works? Email me at hayden@thefinancemarshall.co.nz

Homeowners and mortgage holders

Interest rates have come down to record lows following the Reserve Bank dropping the official cash rate to an all-time low of 0.25%. The Government and banks have also agreed to give impacted mortgage holders, a six-month loan repayment holiday on both the interest and principal of their mortgages. 

Loan repayment holidays:

A loan repayment holiday only lasts 6 months and then the interest for that period is added to the loan. As a result your loan payments are then higher to have the loan repaid in the same original term. 

If you really want to do that then that’s fine - you know the situation you are facing right now. My concern is if our current issues last longer than 6 months (which they likely will in some form) as you’d be hit with slightly higher payments at the end and your financial position won’t have changed. I recommend going interest only - at least then you’re keeping up with the interest and the period of interest only could be 12 months.

Then the balance of your mortgage will still be the same as it is today at the end of the interest only period.

To understand how the two options could look for you, just give me a call and I will run the numbers for you. Or read on below as I discuss the difference between interest only and payment holidays in more detail.

The other thing you need to remember is DON’T PANIC, the Government and banks are working together on this initiative and it takes some time to set up and all the details have not been released yet. 

Please do reach out to me if you would like some advice but once I know the process my team and I will be trying to contact you all to offer our personalised service and advice.

In the meantime the banks 0800 numbers are open and available (albeit “clogged”)

(Click here for the mainstream banks 0800 #’s) to try & assist, but if you can, just “take a breath” and let the systems be put in place so we can assist and we will be in touch ASAP. 

Income over and mortgage repayment cover:

This only provides a benefit in the event you can’t work due to illness or injury. Which for most of us now is not the case. Unless there is a Redundancy add-on (for Mortgage Repayment Cover) they won’t pay out because of reduced hours or income due to a pandemic or redundancy. Insurers are not currently taking applications for Redundancy over.

Redundancy:

If anyone is made redundant then there might also be ways we can reduce their Life Insurance premiums for a period, as well as looking at some of the following options for loans and mortgages:

Wage support

Impacted businesses can access a wage subsidy of $585 a week per full-time employee and $350 a week per part-time employee for up to 12 weeks at a cost of up to $9.1 billion.  

To qualify businesses need to commit to continue to employ staff and pay them 80% of their current wage, show they have suffered or project to suffer a 30% or more reduction in revenues and have taken steps to mitigate the impact of COVID-19 on their business. 

The initial $150,000 cap was removed which means basically every impacted business will be covered enabling them to support their workers.  

Businesses

Tax changes:
The Government has announced $2.8 billion in business tax changes to free up cashflow, including a provisional tax threshold lift, the reinstatement of building depreciation and writing off interest on the late payment of tax. 

Sick leave and isolation support: 
126 million dollars has been allocated to support staff to take sick leave for self-isolation, or stay home when sick with COVID-19. 

Aviation support package:
600 million dollars targeted to support the aviation sector. 

The Business Finance Guarantee Scheme:
A 6.1 billion dollar scheme allowing qualifying businesses to borrow up to $500,000 for a maximum of 3 years. Banks will be expected to provide these loans at competitive rates. The Government will carry 80% of the credit risk, with the other 20% to be carried by the bank. 

Changes that can be made to your loan or mortgage:

Banks all have an easy process for changing your loan terms in the following ways:

  • Increasing your loan term to allow for lower payments (maximum total loan term 30 years from when it was drawn down)
  • Changing the loan to interest only for up to 12 months
  • Providing a loan repayment holiday (where the interest is added to the loan)

The differences between interest only and a loan repayment holiday are:

Interest only:

You make monthly interest only payments. This means that your debt is not increasing but you’re also paying nothing off. You’ll simply just keeping up with the interest. 

  • Your payments later will be slightly higher so as to repay the loan within its current term or your loan term can extend (the maximum total term 30 years) meaning your payments are the same but you’ll have the loan for longer.
  • The amount of the interest payment will change each month depending on the number of days in the month.
  • The interest payments can be easily calculated by looking at the interest payments in your online loan summary or taking your loan amount, multiplying it by the interest rate and then dividing it by 12 = the monthly interest only payment.
For example – a $500,000 loan with 23 years to go and at a rate of 3.50% pa would have Principal and Interest payments of $2,640 per month.
Interest only payments would be $1,458 for an average month ($500,000 x 3.50% / 12 ).
Once the 12 month interest only period is over the loan has 22 years to go (1 year less) but the balance is still the same.$500,000 over 22 years at 3.50% pa is $2,718 per month

Loan repayment holiday:

  • You make no repayments whatsoever for up to 6 months,
  • The interest is added to the loan each month so that at the end of the holiday period your loan balance is higher.
  • Your repayments are higher after the holiday to allow for the increased loan to be repaid within the original loan term or your loan term can extend (maximum total term 30 years) meaning your payments are the same but you’ll have the loan for longer.

For example – a $500,000 loan with 23 years to go and at a rate of 3.50% pa would have Principal and Interest payments of $2,640 per month.
Interest only payments would be $1,458 for an average month ($500,000 x 3.50% / 12 ).
You’d make no payments so the interest you’re not paying of around $1,458 per month is added to the loan balance each of the 6 months – a total of $8,750.
When the 6 month loan repayment holiday is over the loan balance has increased to $508,750 and there are 22.5 years to go. The resulting payments are $2,725 per month.

What next?

In the first instance it is best to talk directly to your bank about these matters at this time. I continue to operate as best I can, knowing that we will get through this. Keep safe!



 

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