NAB checking repayment ability of mortgage relief customers for COVID-19

NAB checking repayment ability of mortgage relief customers for COVID-19

If you’re one of the 80,000 NAB customers who deferred their mortgage repayments due to financial strain from the COVID-19 crisis, you can expect a call from your bank shortly.

From this week, NAB has announced it will be calling its mortgage customers who took advantage of its relief package to see if they can begin making repayments.

NAB offered home loan customers the ability to pause repayments for up to six months due to the COVID-19 crisis. Initially, NAB noted it would check in with borrowers at the three-month mark, much like the other big four banks. This announcement means NAB is taking the first steps in reaching out to financially impacted households one month earlier than expected.

NAB Chief Customer Experience Officer, Rachel Slade, said: “The deferral has provided some immediate and much-needed relief, but if customers are able to make payments again, we will be encouraging them to do so.”

“We don’t want our customers to be in debt any longer than they need. We want our customers to choose what’s best for them,” said Ms Slade.

Whether you’re financially able to resume your mortgage repayments or not, this announcement is potentially a good opportunity for you to secure a rate cut. You may just need to be brave enough to ask for one.

Big four bank relief packages

The Australian recently reported that the big four banks have earmarked “billions of dollars for COVID-19-related bad debts”. NAB has allocated $807 million, the lowest of the big four, while ANZ has put away $1 billion. Commonwealth Bank and Westpac have each set aside $1.5 billion and $1.62 billion respectively.

For more information on home loan relief packages, and to see what your bank may be offering, visit RateCity’s relief page.

Bank Home loan relief Credit card relief Personal loan relief
NAB Repayment pauses of up to 6 months.

 

Remove late fees for at least three months, starting 3 April 2020.

Reduce the minimum repayment amount to 0.5% of balance or $5 whichever is higher. From 27 April 2020 until at least 24 July 2020.

Reduce the interest rate on personal NAB Low Rate Classic Cards to 12.99%.

Reduced repayments to as low as $100 a month for 6 months.
CBA Automatically reducing the direct debit repayments for all eligible accounts to the minimum required from Friday 1 May 2020.

Repayment pauses for up to 6 months including a one-off payment to offset any “interest on interest” charges during that time.

Consider requests to switch to interest-only repayments.

Refunding late fees and interest in March 2002.

 

Repayment pauses for up to 2 months.

 

ANZ Repayment pauses for up to 6 months.

Consider requests to switch to interest-only repayments, increase loan, refinance or apply for an equity loan.

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Westpac Repayment pauses for up to 6 months.

Request fees be waived or deferred when restructuring or consolidating home loans.

Request an emergency credit limit increase on credit cards.

 

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Source: RateCity.com.au

Turn your call into a rate cut

While pausing mortgage repayments can allow for much-needed breathing room in a crisis, it does have its own negative impacts. In the long run, it may cost you more money due to interest capitalisation.

After you resume your repayments, you may need to make higher repayments to make up for the increase in interest. You may even extend your loan term for up to six months to accommodate for these missed repayments, which ultimately would cost you more in interest.

One way to try and mitigate these costs is to turn your call with your lender into an opportunity to get a rate reduction.

Even if you’re not with NAB, if you’re a home loan customer who has paused mortgage repayments and are now able to make repayments again, consider asking for a rate cut when you get the check-in call.

Steps to asking for a home loan rate cut:

  • Check what home loan rates your bank is offering new customers. Chances are these rates will be lower than what you’re currently paying.
  • Hop on RateCity’s low rate comparison tables to see what more competitive options are available.
  • When you receive a call from your lender, mention that newer customers are being offered lower rates and you want to be moved to one of these rates.
  • If they won’t budge, mention the lower rates offered by competitors and say you’d consider leaving if your rate is not reduced.
  • Ask for a mortgage discharge form to show you mean business. This is a great way to call your bank’s bluff if they still refuse to reduce your rate.

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Learn more about home loans

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

How do I calculate monthly mortgage repayments?

Work out your mortgage repayments using a home loan calculator that takes into account your deposit size, property value and interest rate. This is divided by the loan term you choose (for example, there are 360 months in a 30-year mortgage) to determine the monthly repayments over this time frame.

Over the course of your loan, your monthly repayment amount will be affected by changes to your interest rate, plus any circumstances where you opt to pay interest-only for a period of time, instead of principal and interest.

How much are repayments on a $250K mortgage?

The exact repayment amount for a $250,000 mortgage will be determined by several factors including your deposit size, interest rate and the type of loan. It is best to use a mortgage calculator to determine your actual repayment size.

For example, the monthly repayments on a $250,000 loan with a 5 per cent interest rate over 30 years will be $1342. For a loan of $300,000 on the same rate and loan term, the monthly repayments will be $1610 and for a $500,000 loan, the monthly repayments will be $2684.

What is a variable home loan?

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

What is the difference between fixed, variable and split rates?

Fixed rate

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Variable rate

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

Split rates home loans

A split loan lets you fix a portion of your loan, and leave the remainder on a variable rate so you get a bet each way on fixed and variable rates. A split loan is a good option for someone who wants the peace of mind that regular repayments can provide but still wants to retain some of the additional features variable loans typically provide such as an offset account. Of course, with most things in life, split loans are still a trade-off. If the variable rate goes down, for example, the lower interest rates will only apply to the section that you didn’t fix.

What is an interest-only loan? How do I work out interest-only loan repayments?

An ‘interest-only’ loan is a loan where the borrower is only required to pay back the interest on the loan. Typically, banks will only let lenders do this for a fixed period of time – often five years – however some lenders will be happy to extend this.

Interest-only loans are popular with investors who aren’t keen on putting a lot of capital into their investment property. It is also a handy feature for people who need to reduce their mortgage repayments for a short period of time while they are travelling overseas, or taking time off to look after a new family member, for example.

While moving on to interest-only will make your monthly repayments cheaper, ultimately, you will end up paying your bank thousands of dollars extra in interest to make up for the time where you weren’t paying off the principal.

What is a fixed home loan?

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

How can I calculate interest on my home loan?

You can calculate the total interest you will pay over the life of your loan by using a mortgage calculator. The calculator will estimate your repayments based on the amount you want to borrow, the interest rate, the length of your loan, whether you are an owner-occupier or an investor and whether you plan to pay ‘principal and interest’ or ‘interest-only’.

If you are buying a new home, the calculator will also help you work out how much you’ll need to pay in stamp duty and other related costs.

Interest Rate

Your current home loan interest rate. To accurately calculate how much you could save, an accurate interest figure is required. If you are not certain, check your bank statement or log into your mortgage account.

What is the best interest rate for a mortgage?

The fastest way to find out what the lowest interest rates on the market are is to use a comparison website.

While a low interest rate is highly preferable, it is not the only factor that will determine whether a particular loan is right for you.

Loans with low interest rates can often include hidden catches, such as high fees or a period of low rates which jumps up after the introductory period has ended.

To work out the best value for money, have a look at a loan’s comparison rate and read the fine print to get across all the fees and charges that you could be theoretically charged over the life of the loan.

I have a poor credit rating. Am I still able to get a mortgage?

Some lenders still allow you to apply for a home loan if you have impaired credit. However, you may pay a slightly higher interest rate and/or higher fees. This is to help offset the higher risk that you may default on your repayments.

How long should I have my mortgage for?

The standard length of a mortgage is between 25-30 years however they can be as long as 40 years and as few as one. There is a benefit to having a shorter mortgage as the faster you pay off the amount you owe, the less you’ll pay your bank in interest.

Of course, shorter mortgages will require higher monthly payments so plug the numbers into a mortgage calculator to find out how many years you can potentially shave off your budget.

For example monthly repayments on a $500,000 over 25 years with an interest rate of 5% are $2923. On the same loan with the same interest rate over 30 years repayments would be $2684 a month. At first blush, the 30 year mortgage sounds great with significantly lower monthly repayments but remember, stretching your loan out by an extra five years will see you hand over $89,396 in interest repayments to your bank.

Who has the best home loan?

Determining who has the ‘best’ home loan really does depend on your own personal circumstances and requirements. It may be tempting to judge a loan merely on the interest rate but there can be added value in the extras on offer, such as offset and redraw facilities, that aren’t available with all low rate loans.

To determine which loan is the best for you, think about whether you would prefer the consistency of a fixed loan or the flexibility and potential benefits of a variable loan. Then determine which features will be necessary throughout the life of your loan. Thirdly, consider how much you are willing to pay in fees for the loan you want. Once you find the perfect combination of these three elements you are on your way to determining the best loan for you. 

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.