Repayment Freeze from Banks

cnut on 24/04/2020 - 20:06
Last edited 24/04/2020 - 20:07

Pretty much all banks have recently announced that they'll stop home loan repayments for up to 6 months. But reading the fine print, it's not as benevolent as it looks at first glance.

Interest still accumulates during this period. Which is understandable to some degree because they owe money too.

What irks me is twofold. Firstly they make it out like they're only doing it to help people, which in the short term helps some. Secondly, when the 6 month period finishes, your home loan is now even bigger than it was at the start because you have all that added interest. And there's a good chance the economy will still be screwed (if not worse) in 6 months, with more people out of a job.

So what's the impact of stuff like this 6 months from now? I feel like a lot of people will have a real hard time, with even bigger repayments than they currently have, in an economy that will be even worse than today.

Like the ability to take out your super, it's handy now if you're desperate or have no other choice, but a really bad idea in the long run?

Financial

Comments

  • [Deactivated] on 24/04/2020 - 20:22
    +1

    In the view of being honest, has your income been affectef by this event? Mine hasnt so i just watching on and helping where i can.

  • tsunamisurfer on 24/04/2020 - 20:23
    +11

    The Banks are not charities to give you free money FFS.

    I won't use the word benevolent but they have been good to provide this mortgage holiday, they didn't have to you know?

    If you were at the stage where you needed this holiday, the choice is to have the house foreclosed at fire sale prices and you having to make up the difference to them or your LMI provider OR you get to keep your head above water for 6 months and kick the interest can down the road.

    Which would you choose?

    I bet you'd be bitching even more if you have no option but Option 1.

    Have some humility.

  • [Deactivated] on 24/04/2020 - 20:37
    -4

    but a really bad idea in the long run?

    Reality is when it gets to summer it's going to be pretty hard to keep freezing.
    With global warming even in winter, this might be hard

    [Deactivated] on 24/04/2020 - 20:37 (Collapsed - Offtopic. Show)
  • ozhunter on 24/04/2020 - 21:27
    +9

    You are free to pay the same amount you have always been paying.

  • cjbowden on 24/04/2020 - 21:48
    +3

    I'm not convinced the banks provided a mortgage holiday because they are nice people. Let's say that 10% of the population lose their jobs and therefore default on their mortgage. This would led to many fire sales, with many sellers and few buyers.
    Sure, they could choose to foreclose on some but not all, but then they open themselves up to discrimination claims.
    They are doing this so they don't have many defaulters.

    • tsunamisurfer on 24/04/2020 - 23:47

      Yes its a win / win.

      The alternative is bank forecloses on you, fire sale leaves you owing money, the bank loses money chasing you to bankruptcy.

      Would you prefer that?

      • EightImmortals on 25/04/2020 - 06:35
        +1

        "The alternative is bank forecloses on you,"

        And you don't think that's going to happen anyway at some point? Only now when they do it the amount owing is going to be even greater. The economy will not jump-start back to where it was once our overlords declare their 'emergency' over. This depression will continue for a long time, maybe a couple of years even. The banksters are working in their own interests not yours and if you can't make the payments now without a job then how will people make larger payments in six months time Still without a job?

        • Donaldhump on 25/04/2020 - 08:16
          -1

          From savings, and given interest rates so low, it’s not that much, I’d say even cheaper than rent for 500k houses.

          Unless you got an insane mortgage for an overpriced property with no buffer

  • capslock on 24/04/2020 - 23:07
    +2

    At 3% interest rates, the interest amount over six months will be relatively small. The bank will most likely just spread it out over the remaining life of the borrower's 30 year home loan so most people won't even notice any difference to their debt or repayments when the six months is over.

    • [Deactivated] on 25/04/2020 - 09:07

      Exactly. Most never stay in the same house for 30 years either so will pay out. I did it better $10k in my bank over the next 6 months being self employed. Can always pay extra in when things get back to normal. I have been paying $200 a week extra for years too.

  • miwahni on 24/04/2020 - 23:39

    It may only help "in the short term" but the hope is that it will only be needed short term. Three months' immediate pause, with minimal paperwork (usually just a letter from your employer confirming you have been stood down / made redundant/ had hours cut), followed by a review and an additional three months if required. A lot of people have been stood down and with any luck will be working again before the six months is up. Yes, their loan balances will be higher and remaining term shorter, so their repayments will be higher at the end of the deferral, but isn't that better than having default fees added to the loan, sheriffs at the door etc with all the stress and worry?

    A full repayment pause isn't the only option, either - borrowers are encouraged to pay what they can, with 50% of minimum repayment offered,or swap to interest only if they can manage. But those who can't manage either of those options can defer in full.

    For those whose situations haven't improved within the six months, I imagine they'll be transferred across into the standard hardship provisions. But it's uncharted waters. I don't know how it will play out then.

  • zzzsianzzz on 25/04/2020 - 00:02
    +4

    when did banks became angels?
    i think they should let the foreclosures and defaults happen before it recovers. banks got cheaper loans but not pass that on, lending gets harder after banking commission, they get large fine bills, and their processing offshore slowed. Insurers are backing off, it got worst controlling the fall. defaulters and foreclosures will hit banks hard to make them want us with them.
    Now they might crash and burn some bad, billions debt, no evictions, no foreclosures, no rents for landlords, temporary residents leaving, vacancies in market, system abusers, more companies shuts, whole country gets dragged.
    if 2nd covid19 wave hits, whats standing?

  • Trying2SaveABuck on 25/04/2020 - 00:30
    +3

    banks arent giving you something for nothing trust me

  • whooah1979 on 25/04/2020 - 07:16
    +2

    Owners that can’t afford to service their mortgage may have to sell an asset or two. That is the nature of investing.

  • Choc0 on 25/04/2020 - 09:28

    This will stop carnage for now. A large part of those affected will be back on their feet in a few months, and they will pick up the loan where they left off, albeit with a higher principal. Without this measure, they would have defaulted and had their asset ripped away (and likely sold at a depressed price, which is no good for either party)

    • whooah1979 on 25/04/2020 - 13:20

      That would a good correction for new buyers.

      • Choc0 on 25/04/2020 - 20:07
        +1

        If you're looking for any of the following:

        -Long commute from CBD
        -No amenities within walking distance (high vehicle reliance)
        -Crime
        -Poorly serviced by public transport
        -Tiny, flimsy apartment

        These are the types of properties that are bought by the people who are most likely to default on their loans.

        I don't imagine you'll be buying prime properties at their 1995 prices, or even 2010 prices

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