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How to get a mortgage payment holiday if you’re affected by coronavirus
Struggling to make mortgage repayments because of coronavirus? Here are the support packages and relief offered by lenders.
Many New Zealanders are struggling to make home loan repayments as the coronavirus pandemic takes its toll. In response, the Government and retail banks have arranged a six-month home loan deferral scheme to help borrowers during this time.
This scheme allows those that have a mortgage and have been affected by COVID-19 to defer principal and interest payments for up to six months. Interest still accrues over this time and is added to the principal amount of the loan. Since the mortgage payment holiday adds additional interest and may extend your loan term, it is essential to consider all your options before applying.
If you’ve been making extra repayments on your mortgage already, instead of taking up the deferred payment, you may be able to reduce your repayment amount for a period. Alternatively, your lender may let you extend your loan term, keeping your repayments lower but repaying the loan for longer to cover the extra interest. There are also other ways that banks are offering financial support to their customers.
Read on to find quick summaries of lender policies and links to their coronavirus mortgage support pages, plus explanations for some of the technical terms contained in these policies and proactive tips for getting your mortgage repayments under control.
What support are the big lenders offering?
Here’s how New Zealand retail banks are helping borrowers affected by COVID-19:
ANZ is allowing eligible customers to pause mortgage repayments for up to six months. Fees are waived for the restructuring of loans if you need to reduce your repayments or you can top-up your existing home loan to access extra funds. ANZ has also passed on the Official Cash Rate drop to floating and flexible home loan customers.
Westpac customers can defer mortgage repayments for up to six months. You can also take a mortgage repayment reduction for six months. The Official Cash Rate drop has been passed onto floating rate customers with cuts to the special 1-year and 2-year housing rates.
Eligible BNZ customers can take advantage of a home loan repayment deferral for up to six months. Alternatively, you can apply for interest-only payments for up to 12 months.
Kiwibank home loan customers affected by COVID-19 can apply for a home loan repayment deferral for up to six months. You can also discuss other options including an extension of your home loan term, interest-only home loan payments for up to six months or reducing to minimum payments.
If you have a mortgage with ASB you can apply for a three to six-month mortgage repayment deferral. Other options include interest-only repayments for up to six months and waived fees for loan top-ups or restructuring.
Who is eligible?
Every lender has its own criteria to determine who is eligible for coronavirus support and assess the suitability of each person that applies. You may have to prove that you’ve lost a job or income to qualify. Each bank has details on eligibility criteria and how you can apply for mortgage repayment help on its website.
If you’ve lost your job or had invoices cancelled, retaining a letter of termination or other evidence of income loss is a wise move.
Confusing terms explained
Some of the jargon in lenders’ support policies can be confusing. Here are some basic definitions to help you make sense of everything:
Repayment pause or deferral – A pause or deferral of repayments is often known as a mortgage repayment holiday. It means you take a temporary break from your normal repayments while you get back on your feet financially. You need to cover these repayments later, either by extending your loan for a longer period (thus making more repayments) or by increasing your repayments after the pause period.
Interest capitalisation – Some lenders pause your repayments but charge interest for those months of non-payment. Instead of making you repay all this interest in one go, it is usually capitalised onto your loan, which means the extra costs are added to your existing loan amount and you repay them over time.
Redraw – Many lenders allow you to make extra repayments. If your loan has a redraw facility you can withdraw some of this extra money to spend if needed. If you’re in financial stress but you’ve made extra repayments in the past your lender may let you redraw this money and convert it to extra repayments. Because this money has already been paid by you, your lender may simply adjust the repayment terms. You need to arrange this with your lender.
Rate cuts – Many lenders mention interest rate cuts in their coronavirus support packages, which is partly because the RBNZ lowered the official cash rate (OCR), making borrowing costs cheaper. Depending on the lender, you may see lower floating rates as well as fixed rates.
I’m not affected yet, what financial precautions can I take?
There are many steps you can take if you’re currently unaffected by financial stress but want to prepare yourself just in case.
If you currently have a home loan, consider the following:
- Check your interest rate. Rates are currently quite low. If yours has risen over time there might be much better deals on the market. If this is the case, you could refinance (switch) and save.
- Refinance to a lower-rate loan. If your rate is high, compare your options and refinance to a lower interest rate. Your repayments will shrink.
- Make extra repayments via an offset account. Making extra loan repayments reduces your debt and is good financial preparedness for if you become affected by coronavirus. You can put the extra repayments directly into your loan or save them in your mortgage offset account (if you have one). The offset account gives you more flexibility to use the repayments later.
- Build a savings buffer to cover future repayments. If it’s at all possible, build up extra savings now. You can use this to cover repayments if you get sick or lose your job. Again, you can do this via an offset account (and this lowers your interest costs) or any savings account.
If you’re still employed but have less income then you may have the option of switching to interest-only repayments for a while, which reduces your repayments in the short term and could offer some breathing space. However, be aware that over time interest-only repayments cost you more because you’re essentially adding more interest charges to the loan.
Note that if you have other, higher interest debts besides your mortgage then you should get those under control first, if possible
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