Extending a mortgage holiday without considering alternatives
Extending a mortgage holiday isn’t always the best way forward. Consider alternatives. There are three possible situations.
- You are in dire financial straits and don’t see an income correction any time soon: In such a situation, it is best to apply for a mortgage holiday without missing a repayment.
- You don’t see any income correction in the foreseeable future: If you happen to be in a high-risk industry like international travel or tourism and don’t expect things to improve, then opting for a mortgage holiday may only dilute your property equity further. Under such circumstances, it may be a good idea to bite the bullet and look at selling your property while you still have equity in it. Lenders are assisting affected borrower as much as possible to make the best of a property sale.
- You are just about meeting repayment requirements but are looking at improving savings: If you are looking at building your savings without increasing the cost of your loan then consider these options:
- Interest-only repayments: You could check with your lender on interest-only repayments for a fixed duration. This could help you reduce repayment amounts without increasing the cost of your loan as much as a mortgage holiday.
- Refinancing: If your home loan is over two years old, there is a high possibility that your rate isn’t the most competitive in the market. Even a small dip in your interest rate could reduce your payment size substantially instantly offering you much needed financial respite.
Increasing online spending
With many Australians working remotely coupled with a consequent reduction in daily commuting expenses, many of us have increased our online spending thanks to this extra saving. This increased online spending could adversely impact the chances of mortgage approval.
With lenders getting more conservative and cautious with dispensing loans, they are likely to scrutinise borrower spending habits more closely. Here’s what prospective borrowers need to keep in mind:
- Lenders are obliged to check your living expenses and will know if you have credit card accounts from your credit report.
- Many lenders will request copies of bank and credit card statements to check your spending patterns
- If your online spend has increased significantly during COVID, they may view this as long-term spending, which could limit the amount you can borrow.
So, if you are looking at securing a mortgage, be cognizant that a spike in your online and credit card spending activity could adversely impact your chances.
If you are considering a home loan, it’s best to reach out to us to enhance your chances of approval.