Kiwis whose finances have taken a hit as a result of the Covid-19 crisis should take up the mortgage payment deferrals being offered by the banks, mortgage and real estate expert Mike Pero.
“If you need it, take it,” says Pero, who founded the mortgage and real estate firms that bear his name. “If you’re one of the many thousands of Kiwis with uncertainty around your future income, the best thing you can do is get the credit facility – or mortgage holiday – in place sooner rather than later.”
On March 24, the day before the country moved to Alert Level 4 and went into lockdown, the Government announced a joint initiative with banks to allow people whose incomes have been affected to take a six-month break from paying their mortgages. The offer means principal payments will be stopped while the interest will be added to the the loan.
Finance Minister Grant Robertson says that will mean “a significant bill” later on, but in the meantime, it takes some of the pressure off at a tough time.
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Thousands of home owners have taken up the mortgage holiday, but others appear to be hesitant because of how much more it could cost them in the long run.
Pero agrees it’s worth taking steps to ease hardship now. “Some advisers are warning people that a mortgage holiday will add thousands of dollars, and months or years to their term. That may well be the case if you are early into your mortgage and you have a long term ahead, but today’s priority should be to stay afloat and avoid a financial disaster.”
Pero, a former commercial pilot, adds, “It’s like an airliner that discovers a problem shortly after take-off and dumps thousands of dollars worth of fuel to avoid a crash landing. It’s better to lose the fuel than the whole aircraft.”
He points out that banks may also be open to options other than just stopping all mortgage payments.
“Your discussion with your bank or broker could also include an option to go ‘interest-only’ for a few months or more. Another option is to pick a figure anywhere between your current monthly or fortnightly payment and no payment that you can afford to pay under your changed circumstances.”
And if it turns out that you don’t need the extra credit, you can always repay it, in most cases without penalty.
The crucial point is not be scared of contacting your bank or broker, so you can put the wheels in motion to make provisions to survive both financially and emotionally, Pero says.
“For some people, financial pressures can lead to stress and anxiety and that opens up another can of worms.
“Even during lockdown these changes can be made by phone and an exchange of emails. I believe for some people who are struggling, a conversation with a finance professional will be a major relief, in more ways than one.”
He adds, “There’s a bit of extra work for banks and brokers in re-jigging a mortgage and making this provision, with little reward, but they would rather help customers in this time of need.
“Banks don’t want mortgage customers falling behind scheduled payments – it’s not good for them or our economy. They would rather fund them through the tough times and avoid mortgagee sales – a very last resort.”
He cautions against raiding savings. “My advice is do not use your own emergency funding or special savings to prop up your mortgage payments if that is going to leave you tight and stressed. When the dust settles and we start getting back to normal, later in the year, that’s the time when you can make your personal and business decisions.”
