Mortgage holidays: What you need to know

What is a mortgage holiday?

A mortgage holiday lets you temporarily stop making repayments on your home loan if you’re under financial pressure.

Homeowners who are struggling financially as a result of the Covid-19 lockdown can apply to their bank for a six-month mortgage holiday.

How does it work?

Each bank has its own process. You normally need to fill in an application form on your bank’s website. The bank will then contact you to discuss your circumstances.

What are the eligibility criteria?

Anyone affected financially by Covid-19 can apply for a mortgage holiday.

What happens to interest charges?

There’s no holiday from interest charges. Your debt continues to accrue interest during a mortgage holiday.

The “holiday” only lets you defer repayments – interest still accumulates in the meantime. This means it will cost more to repay your mortgage and may take longer.

What should I consider before applying for a mortgage holiday?

• Don’t just apply for a mortgage holiday because it’s an option. If you’re not concerned about your ability to pay, keep up your regular repayments.

• If finances are tight, talk to your bank about reducing your regular repayments, rather than applying for a mortgage holiday. This means you’ll still be reducing your debt.

• If you’re currently paying more than the minimum required to repay your loan, you can ask your bank to reduce repayments (you can increase them again when you’re in a better financial position).

• If you’ve got a fixed-rate loan that’s coming up for review, remember interest rates have come down so you should be able to get a better rate. Look at what other household costs you may be able to cut to give you some breathing room.

What are banks’ obligations?

Banks have legal obligations to act as responsible lenders. This means they must treat borrowers reasonably and in an ethical manner at all times, including when a borrower suffers financial hardship.

I don’t think my bank is treating me fairly. What should I do?

You can make a complaint to the Banking Ombudsman: bankomb.org.nz. The ombudsman can look at most types of complaints about banks.

Our advice

• A mortgage holiday will give you a break from making regular payments when your finances are under pressure. But it’s not a holiday from interest: interest will continue to be charged on your debt. You’ll be paying more in the long term to repay your mortgage.

• If you need to apply for a mortgage holiday, keep it as short as possible. The longer you put repayments on hold, the more you’ll pay in interest. A three-month mortgage holiday will be better than taking a six-month holiday.

• Consider other options before applying for a mortgage holiday. Reducing your regular mortgage repayments could help lessen the financial load while still helping you to reduce your debt.

If you think your bank isn’t acting as a responsible lender, or has misled you, you can also complain to the Commerce Commission: comcom.govt.nz.