Frequently asked Questions - Covid-19 Coronavirus
In times of uncertainty many of us will have questions about our financial situation. Our team is fully staffed and working hard to answer your questions as quickly as we can - we do appreciate your patience. In the meantime, below are a few of the more commonly asked questions, which might help. We will be updating these as new information becomes available.
How might Covid-19 affect my mortgage interest rates?
Covid-19 has had an impact on our global and national economy. The Reserve Bank of New Zealand has responded to this by making an emergency cut to the Official Cash Rate.
Some banks have responded by making interest rate cuts to floating mortgages, and revolving credit facilities (Orbit, Flexi, Offset etc). Some banks have also made some adjustments to their fixed rates.
I have an interest rate that is floating – do I need to do anything to get the new lower rate?
If your interest rate is floating, and your bank has dropped their floating rate, then your interest rate should drop automatically. This usually takes place the month following the interest rate drop and the Bank should provide a communication to you with the effective from date.
I have a discount on my floating rate – will I still keep this?
Your discount will continue to apply to whatever the floating rate is on any given day.
My current fixed rate is about to end – what should I do? Fix it now or keep it floating?
Whilst we cannot predict the future and don't know whether the rate is going to go down or up, you can make an informed decision about whether to fix or float based on weighing up the risks and benefits in your own individual situation. Some people might be happy to risk waiting to see if rates come down further, while others need the certainty of fixing now for a longer period to ensure their repayments are consistent, even though they might not be the lowest possible. Our advisers are happy to discuss the options with you.
Should I fix for a longer or shorter time than I usually would?
Again, it comes down to weighing up what the risk is, and if you’re willing to take it. We cannot predict what, if any, long-term impacts this may have on our economy. Our advisers are happy to discuss the options with you.
I have a fixed rate now. Can I break that term and go onto a cheaper fixed rate?
The situation will be different for each client and under each institutions lending terms and conditions. There is usually a break fee associated when you break a fixed rate while rates are going down. Most Banks are able to provide a break fee cost with relative ease. It is important to weigh up the “break costs” and the “potential savings” that could be gained over the remaining period of the fixed rate. Our advisers can help with this decision should you want to proceed with this course of action.
Kiwisaver as my deposit
I’m planning to use Kiwisaver for my deposit – could Covid-19 affect this?
If you are planning to use your Kiwisaver as your house deposit in the near future, you may be affected.
We do not provide investment advice in relation to funds management. If you want advice as to what to do with your Kiwisaver investment, you will need to consult an authorized financial adviser.
With the Economic environment changing on a daily basis most of our clients are thinking long term about managing their expenses. Mortgage payments represent a large portion of our weekly expense. As a result of Covid-19 the Government has put in some safety measures for Wage/Salary workers and there is some relief for business who suffer more than a 30% loss in revenue. https://covid19.govt.nz/government-actions/financial-support/
The Banks, like us, are fielding lots of inquiries about how you can get some financial relief from your mortgage payments. Please be patient with response times from both us and the Banks in this unprecedented time. It is also our understanding that the Reserve Bank is working with the major Banks to put in place measures to protect you as home owners – at this stage there is no clear information available.
Most Banks have a Financial Hardship policy. We’d imagine the banks are ramping up their offers of assistance but here are two possible options that may be available. Remember: these are only options you should consider if you are genuinely in need of assistance:
Changing your repayments to Interest Only
Interest only is sometimes a good option to reduce your normal mortgage repayment. You can make a simple assessment on how this will help by multiplying your Mortgage Balance by the Interest Rate you are on, and then dividing by your repayment frequency.
For example, If you have a mortgage balance of $400,000 and your rate of interest is 3.60% pa, with a weekly payment then calculate as follows: ($400,000 x 3.60%)/52 weeks = $14,400/52 = $276.92 approximate interest per week.
This would save you the principal of approximately $142.48 per week based on a 30 year mortgage.
Please note, however, that there are implications involved with this option that you may wish to get advice on.
Mortgage Holiday (Principal relief)
Under this option, if available, your mortgage payments stop all together (if approved). The problem with this is that the Interest is still due so will compound to your mortgage balance. If we use the above example, that would mean your mortgage balance today of $400,000 would be increased to $400,276.92 after the 1st week. The interest would then be re-calculated on this new balance the following week, and so on.
Remember that if you didn’t own a home, and had no mortgage you would likely be paying rent., from which there is usually no suspension options. If you really do need relief, we encourage you to use the Interest only option in the first instance as the compounding effect of a Mortgage Holiday can worsen your position over time.
The main banks are accepting applications for up to 6 month mortgage holidays, for clients whose income has been affected (or is likely to be affected) by Covid-19.
The quickest and easiest way to apply for Covid-19 related mortgage relief at the moment is to visit your lender's website and apply online (see Contact links below). You can also call them, but it's likely you will have to wait some time.
If you would like to discuss your options with your adviser before you apply, please email us at firstname.lastname@example.org, and we will reply to you as quickly as we can.
Following are the links to some of our lenders' Covid-19 information pages:
Bluestone - https://www.bluestone.net.nz/covid-19/
Co-Operative Bank - https://www.co-operativebank.co.nz/help/covid-19
First Mortgage Trust - https://www.firstmortgagetrust.co.nz/
Does my life insurance cover me if for Covid-19?