FINANCE CONSIDERATIONS DURING CORONA VIRUS

Australia’s big four banks have announced a range of measures to support customers through the corona virus pandemic, as outlined in this article here: https://bit.ly/2wB1z1V

 If you need to defer repayments because you’ve been impacted by the fast-moving economic downturn, please contact your banks directly to see how they can help. At the moment this is assessed on a case by case basis, whereas we think it should be offered to all customers across the board, so it’s implemented with greater speed and efficiency. With a number of people finding it challenging to make contact with the banks, and it also being hard for the banks themselves to deal with the volume of enquires. 

We would also caution you to be careful about new bank offers particularly around fixed rates. Banks are quick to market themselves as good corporate citizens, but are also quick to capitalise on the market opportunity this crisis has provided them.

 There are some 'Pros and Cons' to consider. 

There have been two x 0.25% rate cuts in the last month, but most banks have only passed on one of these rate cuts. Instead the banks are offering to ‘lock customers’ into lower fixed rate loans for 1-3 years. Banks are offering these cheaper fixed rates, because they haven’t passed on the variable rate drop. So, in effect they are robbing Peter to pay Paul.

What’s wrong with this you ask? 

Four major considerations really. 

1  Banks love fixed rates because it locks customers in and restricts their choice. Fixed rates coincidentally are highly profitable for the banks.

2  Fixed rates don’t suit everyone, and therefore banks get to keep the last rate drop which goes to their bottom line and variable rate customers are paying for this when we should be getting the reduced rate benefit as announced by the RBA. 

3. If you fix your loan in, the banks know it’s highly likely you may need to break this fixed rate loan early.  The banks charge a non rebatable break fee, which can be in the thousands of dollars and you can’t calculate this until you need to break it. E.g. a hidden cost

4 You can’t offset surplus monies (like you would with a variable rate loan that has an offset account attached) against a fixed rate loan so it might cost you more in the long term. 

Our advice is to think very carefully about your situation before switching to a fixed rate loan. In times such as these, flexibility and having access to surplus cash is critical. 

If you feel like you could benefit from a lending review because you’re paying too much, lack flexibility, access to equity or are looking to create opportunities in a down market, please get in touch. We’re open for business. Call us for a phone appointment and make good use of your extra time at the moment. 

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