With the fallout from COVID19 ravaging economies all over the world including here in New Zealand, banks have been quick to offer their customers debt relief by way of mortgage deferrals, also called home loan repayment deferrals.
Home loan repayment deferrals are put in place by your bank for those facing short-term hardship as a result of COVID-19, those who have lost income can essentially apply to their bank for a mortage deferral of up to 6 months.
People need to beware that the interest will continue to accrue on their home loan during a deferral, this will increase the amount owed, potentially prolonging the repayment period of your housing loan.
A deferral can be tempting in the short term, but this needs to be weighed up against your long term finacial goals.
It’s worth asking your bank what the added cost will be to your home loan in deferring for 6 months.
There are other options before going down this track for example.
- Reduce your spending habits.
- Liquidate unused assets such as a car, the boat or the bach to pay off debt, and reduce your overall exposure.
- Take advantage of lower interest rates, test the market, switch banks if you have to.
The issue we all face is the uncertainty, we don’t know the exact impact on our economy of continued lockdowns.
This scenario could well be drawn out causing further unemployment, thus making it harder for you to recover lost income.
The single most important thing is to build equity in your home loan by paying off debt hard and fast, while not over extending yourself.
When the rainy day comes, you’ve built in enough of a buffer to buy time while you make some tough decisions.
If you’ve found yourself in this position, and not sure if taking on a loan deferral is the right thing for you, get in contact with me now, I will help you to understand the cost, and get you on a plan to survive hardship you may be facing.