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1 in 6 households can’t raise $2,000: what options do they have?

1 in 6 households can’t raise $2,000: what options do they have?

Australians struggling with their finances are being urged to seek help as both the federal government and banks step up their COVID support packages.

Troubling research from the ABS, released last month, shows 17.5 per cent of households can’t raise $2,000 in an emergency.

The ABS Household Impacts of COVID-19 Survey from May also found that 5.4 per cent of households couldn’t even get $500 cash within a week.

Recent lockdowns across the country have put many people on the back foot yet again, as businesses were forced to shut their doors and casual workers saw their hours cut.

Household ability to raise money for something important within a week

(people aged 18 and over)

Able to raise $2,00076.2%
Able to raise $500 but not $2,00012.1%
Unable to raise $5005.4%
Don't know6.1%

Source: ABS Household Impacts of COVID-19 Survey, May 2021 of 3,371 participants, released June 16.

Whether households could raise money for something important within a week

NSWVICQLDSAWARest of AUS
Able to raise $2,000

74.5%

79.9%

75.3%

69.8%

75.9%

81.4%

Able to raise $500 but not $2k

11.3%

10.7%

14.6%

14.6%

12%

10.4%

Unable to raise $500

6.6%

3.9%

5.5%

7.7%

4.7%

4.5%

Don't know

7.6%

5.4%

4.1%

7.7%

7.3%

3.4%

Source: ABS Household Impacts of COVID-19 Survey, May 2021 of 3,371 participants, released June 16. Rest of AUS is Tas, ACT, NT.

The ABS Household Impacts of COVID-19 Survey also found 20 per cent of Australians said their household needed to take financial action to pay for basic living expenses due to a shortage of money.

The most popular options were drawing on savings, increased credit card spending, taking out a loan from family or friends and selling household goods and jewellery.

RateCity.com.au research director, Sally Tindall, said: “It’s incredibly concerning that more than one in six Australian households can’t raise $2,000 for an emergency.”

“What COVID has taught us is that with absolutely no notice our world can be turned upside down and we can suddenly find ourselves without enough money,” she said.

“For households experiencing financial stress, don’t be afraid to ask for help.

“The banks are there to support people in severe financial hardship but they’re not automatically handing out mortgage deferrals. They will be assessing people on a case-by-case basis to check whether there’s a better way of providing relief.

“If you need help paying the mortgage, make sure you tell the bank ahead of time so hardship measures can potentially be put in place before you default.

“Don’t just stop at asking your bank for help. Make a list of all your bills and reach out to each provider to see what assistance they can offer.

“Sometimes just changing to a more economical plan or switching to a cheaper provider can help you scrape through,” she said.

What to do if you can’t pay the bills

  1. Ask for help from all your bill providers, not just your bank.
  2. Hit pause on non-essential spending.
  3. Check what government assistance you’re eligible for. COVID disaster payments are available to eligible people in a hotspot (currently Greater Sydney), with the government lifting the asset test for the third week of the Sydney lockdown.
  4. If you need emergency cash, see if you are eligible for a no interest loan from Good Shepherd (nils.com.au) or a crisis payment from Centrelink.
  5. Call a financial counsellor for advice. The National Debt Helpline is: 1800 007 007.

Tips to help build up your savings:

Find better deals, whether it’s your mortgage, internet, phone or gas and electricity provider.

Sell your spare stuff. If you’re not in lockdown, jump on to Gumtree or Facebook marketplace and sell anything that might be gathering dust in your house.

Cash in rewards points. If you don’t have a saving buffer, consider cashing them in for supermarket vouchers and put that money into your savings account instead.

Commit to a month of non-essential spending. Everyone needs to let their hair down but if you can live frugally for a month or more, you could save hundreds.

Put your savings in a safe (but productive) place. The home loan is a great place to stash emergency cash because it will help reduce your interest bill at the same time. Otherwise, consider a high-interest savings account. The highest ongoing savings rate on RateCity.com.au is 1.35 per cent if you meet the terms and conditions.

Did you find this helpful? Why not share this news?

This article was reviewed by Research Director Sally Tindall before it was published as part of RateCity's Fact Check process.

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Learn more about home loans

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

Why does Westpac charge an early termination fee for home loans?

The Westpac home loan early termination fee or break cost is applicable if you have a fixed rate home loan and repay part of or the whole outstanding amount before the fixed period ends. If you’re switching between products before the fixed period ends, you’ll pay a switching break cost and an administrative fee. 

The Westpac home loan early termination fee may not apply if you repay an amount below the prepayment threshold. The prepayment threshold is the amount Westpac allows you to repay during the fixed period outside your regular repayments.

Westpac charges this fee because when you take out a home loan, the bank borrows the funds with wholesale rates available to banks and lenders. Westpac will then work out your interest rate based on you making regular repayments for a fixed period. If you repay before this period ends, the lender may incur a loss if there is any change in the wholesale rate of interest.

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

Can I get a Commonwealth Bank home loan during maternity leave?

The Commonwealth Bank considers several factors like your income, expenses, assets, and liabilities to determine whether you’re suitable for a loan. Being on maternity leave doesn’t mean you won’t get approved for a loan, provided you meet the lender’s other criteria. For example, you may have other savings or spousal income to support your application. 

Having said that, it can be slightly more difficult to get a loan while you’re on maternity leave if you’re not being paid for your time off (which is often the case, depending on how long it’s for). 

If you are looking to apply for a Commonwealth Bank home loan during maternity leave, here are some things that may help your application:

  • Get a letter from your employer including details like your date of resuming work, salary when you return to work, and other employment terms
  • Show the bank you have savings. Putting up a 20 per cent deposit may help and you could also avoid Lenders Mortgage Insurance (LMI)
  • Calculate your income and expenses to apply for only what you can afford to pay.
  • If you have a partner or guarantor to help with your loan, provide their financial details on your application. 

Some people like to tell the lender they are on maternity leave before applying to see whether they qualify before going through the full process. 

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

How much deposit do I need for a home loan from ANZ?

Like other mortgage lenders, ANZ often prefers a home loan deposit of 20 per cent or more of the property value when you’re applying for a home loan. It may be possible to get a home loan with a smaller deposit of 10 per cent or even 5 per cent, but there are a few reasons to consider saving a larger deposit if possible:

  • A larger deposit tells a lender that you’re a great saver, which could help increase the chances of your home loan application getting approved.
  • The more money you pay as a deposit, the less you’ll have to borrow in your home loan. This could mean paying off your loan sooner, and being charged less total interest.
  • If your deposit is less than 20 per cent of the property value, you might incur additional costs, such as Lenders Mortgage Insurance (LMI).

Can you borrow the deposit for a home loan?

Most lenders will want the majority of your home loan deposit to be made up of ‘genuine savings’ which is income earned from your job. While a small number of lenders may let you use a personal loan or a credit card to help cover the cost of your deposit, this may potentially cost you more in interest, and put your finances at higher risk.

If you haven’t saved a full deposit, it may be possible to effectively borrow the deposit for a mortgage with the help of a guarantor. This is usually a parent of other family member who guarantees your mortgage with the equity in their own property.

It may also be possible to borrow the money for a home loan deposit from a family member (e.g. the Bank of Mum & Dad) or a friend, provided you draw up a formal legal agreement to pay this money back, showing your mortgage lender that you’re taking responsibility.

Can I get a home renovation loan with bad credit?

If you're looking for funds to pay for repairs or renovations to your home, but you have a low credit score, you need to carefully consider your options. If you already have a mortgage, a good starting point is to check whether you can redraw money from that. You could also consider applying for a new home loan. 

Before taking out a new loan, it’s good to note that lenders are likely to charge higher interest rates on home repair loans for bad credit customers. Alternatively, they may be willing to lend you a smaller amount than a standard loan. You may also face some challenges with getting your home renovation loan application approved. If you do run into trouble, you can speak to your lender and ask whether they would be willing to approve your application if you have a guarantor or co-signer. You should also explain the reasons behind your bad credit rating and the steps that you’re taking to improve it. 

Consulting a financial advisor or mortgage broker can help you understand your options and make the right choice.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

How long can you fix a home loan rate for?

Most lenders should let you fix your interest rate for anywhere between one and five years. While rare, a few lenders may offer fixed rate terms for as long as 10 years.

Fixing your home loan interest rate for a longer term can keep your budgeting fairly straightforward, as you shouldn't have to factor in changes to your mortgage repayments if variable rates change, such as when the Reserve Bank of Australia (RBA) changes its rates at its monthly meeting. Additionally, if variable rates rise during your fixed rate term, you can continue to pay the lower fixed rate until the fixed term ends, potentially saving you some money.

Of course, a longer fixed term also means a longer length of time where you may have less flexibility in your home loan repayments. It’s also a longer period where you won’t be able to refinance your mortgage without paying break fees. If variable rates were to fall during this period, you may also be stuck paying a higher fixed rate for a longer period.

How fast can you get a home equity loan?

Completing an application for a home equity loan may only take 20 to 30 minutes. It may take a lender anywhere from a day to a few weeks to process and approve your application. This may be affected by your financial situation, your level of equity, and whether or not your lender needs to organise an in-persona valuation of the property.

 Before you can apply for a home equity loan, you’ll need to build up some equity in your property. The more money you can put towards extra repayments to reduce your home loan principal, the faster you can increase your equity. Also, if property values in your area increase, this may help deliver an instant equity increase once your property has been valued.

Can I get pre-approval for a home loan from BCU?

BCU offers home loan applicants a pre-approval that is valid for up to three months. To get the pre-approval, you’ll first need to provide information about your homebuying budget and whether you intend to occupy the home, through an online application form. 

A specialist will then discuss your application with you and confirm that you’ve submitted all necessary documents. 

If you meet BCU’s criteria, you could get the conditional approval within 2-3 days of this discussion. 

Remember to get written confirmation of the pre-approval. You can then go back to the bank once you’ve selected the home you want to buy to get the final approval.