Mortgage repayment holidays

• This page contains general information about mortgage repayment holidays and how to approach your lender. You can also visit Finder’s COVID-19 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 8am–5pm, and Sunday 9am–1pm). Also, read Finder’s dedicated guide on help if you’ve lost your job because of COVID-19 for more help.

A mortgage repayment holiday is a temporary period where your lender pauses your monthly mortgage repayments, which can be 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.

Five ways to pause or reduce your mortgage repayments

There are several options available for pausing your mortgage repayments. Some of these can be pretty simple, while others may be a little more challenging.

1. Temporary mortgage payment suspension through hardship variation. If you cannot keep up with your regular repayments because of temporary financial stress, you can apply for a hardship variation to your lender. If your lender agrees, they pause your repayments and add all interest charges on your mortgage to the end of the loan term. This option can extend your mortgage and add thousands of dollars to your original loan amount but could keep you from losing your home.
2. Temporary mortgage payment reduction. If your income has been reduced temporarily, such as a 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 suggest an amount of money you think you can comfortably repay without putting you into financial hardship.
3. Temporary mortgage payment suspension using your redraw facility. If you have been making extra payments off your mortgage balance, you may find funds are 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.
4. Switch payments to interest-only. If your mortgage has principal and interest repayments, you might be able to switch to interest-only repayments temporarily. This change reduces your monthly repayments significantly in the short term because you only have to pay the interest charged on your loan. However, over time, this costs you more because you eventually need to repay the whole mortgage.
5. 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 mortgage rate makes your life a little easier.

How long can my repayment holiday be?

The length of a repayment holiday is mainly up to your lender. Most lenders consider your circumstances and set up a repayment holiday that meets your needs.

However, be aware that while your lender reduces or pauses your repayment, interest still accrues on the principal of your mortgage, which means you eventually need to either increase your repayments or the length of your loan term to make up the difference.

How much does a mortgage payment holiday cost?

Stopping the payments on your mortgage, 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 mortgage balance down to $296,451.40, but you learn that you’ve lost your job and 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 the lender adds to your mortgage balance during the first month also has interest charged on it during the second month. Both of those amounts have interest charged on them during the third month of your holiday.

• Month 1: an additional $1,531.66 is added to your mortgage balance
• Month 2: an additional $1,539.11 is added to your mortgage balance
• Month 3: an additional $1,547.06 is added to your mortgage balance

By the end of your three month holiday, you owe an extra $4,617.83 on top of your previous mortgage balance of $296,451.40. That means you now owe $301,069.32.

Plus, because your mortgage balance is now higher, but your loan term remains the same (you have 29 years left), your repayments increase from $1,838 to $1,865 per month. This only costs $27 per month, so it doesn’t sound like much, but if you add up those payments over the entire course of the mortgage, 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 entire loan term. But, 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.

If you face financial hardship and decide you need to take a mortgage holiday, make sure you contact your lender for help early. Your lender or mortgage advisor can talk through the alternatives in straightforward language, so you fully understand the options.