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Mortgage repayment holidays
Most home loan lenders will give you a temporary repayment holiday if you're struggling to make repayments if you meet their criteria. Here's how it works.
- This page contains general information about mortgage repayment holidays and how to approach your lender. Visit our coronavirus mortgage support page to get the latest information about how lenders are helping their customers.
- If you are in financial distress please read our emergency finance help information or call WINZ on 0800 559 009 (Monday to Friday 7am–6pm, Saturday to Sunday 8am – 1pm). Read our dedicated guide on help if you’ve lost your job because of the coronavirus for more help.
A mortgage repayment holiday is a temporary period of time where your lender pauses your monthly mortgage repayments. This can be very helpful for borrowers in temporary financial hardship.
Read on to find general information about different ways to put your mortgage repayments on hold and other options for borrowers facing financial hardship.
5 ways to pause or reduce your home loan repayments
There are several options available for pausing your home loan repayments. Some of these can be quite simple, while others may be a little more challenging.
- Temporary mortgage payment suspension through hardship variation. If you are unable to keep up with your regular repayments because of temporary financial stress you can apply to your lender for a hardship variation. If your lender agrees they will pause your repayments and add all interest charges on your home loan to the end of the loan term. This can extend your loan term and add thousands of dollars to your original loan amount, but could keep you from losing your home.
- Temporary mortgage payment reduction. If your income has been reduced temporarily, such as one spouse losing a job and leaving you with only one income, you may be able to apply for a temporary reduction in your mortgage payments. In this situation, your lender may ask you to provide an amount of money you think you can comfortably repay without putting you into financial hardship.
- Temporary mortgage payment suspension using your redraw facility. If you have been making extra payments off your mortgage balance, you may find that you have funds available. This is known as a redraw facility. Rather than withdraw these, you may be able to use them to substitute making repayments. Note that not all mortgages have a redraw facility.
- Switch payments to interest-only. If your mortgage has principal and interest repayments you might be able to temporarily switch to interest-only repayments. This will reduce your monthly repayments significantly in the short term because you only have to pay the interest charged on your loan. But over time this will cost you more because you will need to repay the whole mortgage eventually.
- Refinance your mortgage. How competitive is your interest rate? If you can switch to a lower rate your repayments will go down. While not a repayment holiday, refinancing to a lower home loan rate will make your life a little easier.
How long can my repayment holiday be?
The length of a repayment holiday is largely up to your lender. Most lenders will take into account your individual circumstances, and set up a repayment holiday that meets your needs.
Be aware, however, that while your repayments are reduced or paused, interest is still accruing on the principal of your home loan. This means you’ll eventually need to either increase your repayments or the length of your loan term in order to make up the difference.
How much does a mortgage payment holiday really cost?
Stopping the payments on your home loan even for a short time can cost you a lot more than you might think.
Let’s assume your mortgage balance is $300,000 with an interest rate of 6.2%. Your minimum monthly repayments are $1,838 per month, which you pay comfortably for the first 12 months. After this time, you’ve managed to get your home loan balance down to $296,451.40, but you find that you’ve lost your job and you need to take a three month mortgage holiday.
During your repayment holiday, your lender adds the interest charges onto your loan balance. The interest that was added to your home loan balance during that first month will also have interest charged on it during the second month. Both of those amounts will have interest charged on them during the third month of your holiday.
- Month 1: an additional $1,531.66 is added to your loan balance
- Month 2: an additional $1,539.11 is added to your loan balance
- Month 3: an additional $1,547.06 is added to your loan balance
By the end of your three month holiday you will owe an extra $4,617.83 on top of your previous loan balance of $296,451.40. That means you now owe $301,069.32.
And because your loan balance is now higher but your loan term remains the same (you have 29 years left) your repayments will increase from $1,838 to $1,865 per month. This is only $27 per month, so it doesn’t sound like much, but if you add up those payments over the total course of the loan, you end up with a very different figure.
On the new payments, the total amount you’ll pay back to the bank is $649,183.21. Yet, if you’d found a way to stick to your original payments without taking the payment holiday, you would only have paid $639,416.
That’s almost a $10,000 difference over the total loan term.
Of course, if you face the prospect of losing your home during a period of temporary financial hardship, those costs might be worth it in the long run.
Hardship policies of the major banks
All of the major banks have programs in place to help home loan customers facing financial hardship during the coronavirus pandemic.
ANZ is allowing eligible customers to pause mortgage repayments for up to six months. Fees are waived for restructuring of loans if you need to reduce your repayments or you can top-up your existing home loan to have access to extra funds. ANZ have 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.
If you have a mortgage with ASB you can apply for a 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.
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 or interest-only home loan payments for up to six months.