The government’s repayment deferral scheme introduced at the start of lockdown has been a lifeline for many Kiwis. In the face of job losses and slashed incomes, taking a repayment deferral made sense for those facing hardship.
And many New Zealanders have taken advantage of the scheme. According to the latest statistics from the New Zealand Bankers Association, 7% of consumer loans in June had deferred payments, and a further 8% had reduced payments.
However, the six-month timeframe initially set for repayment deferrals is now coming to an end. Finance Minister Grant Robertson has hinted the scheme may continue. And some commentators are predicting we could see an extension to the end of the year.
But is it still the best option for you? Now is the time to reassess your financial situation.
If your income and job are more secure than at the start of lockdown, then it’s a good idea to look to end your repayment deferralsooner rather than later. After all, you are only deferring payment which means interest is still accruing on the remaining balance.
So, if the repayment deferral has seen you add say $5,000 to your mortgage, it could end up costing you an extra $8,000 in interest. The real cost of the repayment deferral is, therefore, $13,000 and not the $5,000 that it first appeared to be.
Extending your repayment deferralwhen your income is stable could be a ticking time bomb as you rack up more debt. If possible, the priority should be to get back to paying off your mortgage debt as soon as possible. You could be better off in the long run.
However, for some, the fear of redundancy is still very real. Or perhaps you are concerned about job losses with the ending of the government's wage subsidy scheme. In these situations, we recommend talking to your bank or lender as soon as possible. Regardless of whether the repayment deferral scheme is extended, most lenders have special arrangements for people facing genuine hardship.
There may be other options open to you, such as interest-only payments. With this option, although your loan balance remains the same, you will be keeping on top of your interest payments.
Your bank or lender may also be willing to negotiate a repayment reduction. Many of us are paying off each month more than the required minimum loan repayment. And so, there may be scope to reduce repayments until your financial situation improves.
Another possibility is Revolving Credit or Offset accounts. These types of accounts combine your everyday banking and home loan into one account. When your salary or wages are paid in, it immediately reduces your home loan balance. The low-interest rates currently on offer make this a very attractive option. However, if you are on a fixed rate, you may have to wait until your renewal to avoid any break penalties.
Taking a repayment deferral is an important decision. If you are considering whether to go ahead, or you are deciding what to do next, then let’s talk.