March 2020 Finance Update
There have been so many developments in the past few days regarding COVID-19.
Let me share 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. I can help you negotiate and plan with these hardship teams.
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.
If you’re wondering whether to refinance, let’s talk about your specific circumstances and if a better deal exists.
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 info line 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 as 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.
Disclaimer: The advice provided in this article is general advice only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this advice you should consider the appropriateness of the advice, having regard to your own objectives, financial situation and needs. We encourage you to consult a finance professional before acting on any advice provided in this article or on this website.
