What is it?
You delay payments by a period of time and add these to your mortgage to be repaid at a later date. You effectively borrow money from the bank to pay for your upcoming payments. You make no payments while on the ‘mortgage holiday’.
It is not a mortgage holiday it is a mortgage deferral, as you pay later. The outcome is that you have time to sort out your income and finances because your expenses are much lower than normal.
What does it cost?
Short term cost: no payments required from you while you are deferring payments.
Long term cost: every payment you defer is added to your mortgage balance and you will ultimately pay it back plus interest.
How much it costs you over the long term depends on how aggressively you pay it back after coming off the deferral/holiday period.
Credit Rating Impact
It is our opinion (note this is just an opinion, not a verified fact) that the credit agencies, reserve bank of New Zealand and retail banks will try to ensure that these covid-19 mortgage holidays will not negatively affect your official credit ratings.
However, we also believe that if you do not take a mortgage holiday it will improve your position in the future when applying for lending.
Note: we have heard from some banks that as normal a mortgage holiday will place a flag on your credit rating but they are actively trying to waive it.
What other options are there?
A mortgage holiday allows you to keep your house and not ‘make payments’ on your mortgage for 6 months. So the other options to keep paying your mortgage are:
- Keep paying it. If your income hasn’t dropped or you have savings you can just keep up with your normal payments. There are currently overdraft facilities at each bank that are advertised as no fees and no costs for you as alternative covid-19 support. It is worth talking to an adviser about how this could work instead of a mortgage deferral.
- Restructure to interest-only. When restructuring your mortgage to interest-only you keep ‘up to date’ with payments. Your repayments reduce because you are no longer repaying principal and this often gives you a lot of breathing room especially if you have built up a lot of equity and your mortgage repayments involve a high amount of principal repayment.
- Restructure to extend your loan term. When you extend your loan term it reduces the principal repayments, reducing your repayments. Click the link below for more detail.
Go to the mortgagehq covid-19 mortgage hardship page to:
- see a direct cost comparison between a mortgage holiday and interest-only lending
- see exactly how much a mortgage holiday would cost you download the calculator
- Learn more about restructuring, mortgage holidays and interest-only lending.
To apply for a mortgage holiday visit your banks’ hardship page:
To apply for a restructure onto interest-only lending
Use the form on our mortgage covid-19 hardship information page.
To find all options available to you
We have a mortgage snapshot calculator available on our site. Use the ‘understand your mortgage options and potential savings’ option.
Our advisers view mortgage deferral as the last option you should consider as an interest-only term will keep your debt amount lower and your credit score in balance. Taking the mortgage deferral option should be carefully considered as the next step is selling assets or properties or being forced to do so.