Sep 11, 2020 9:44:05 AM

Before You Take a Mortgage Holiday, Here’s What You Need To Know

Topics: COVID-19, Buying and Selling Property 0

Banks in New Zealand have already deferred mortgage repayments up to a staggering $21 billion dollars since New Zealand first went into lockdown in March 2020*. Now the Reserve Bank of New Zealand says it’s extending the mortgage deferral scheme up to March 31, 2021*. But it comes with a warning: Do your homework first. Read on to find out if a mortgage holiday is the right option for you.

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Extending the mortgage deferral scheme

With the announcement by the RBNZ of an extension of the mortgage deferral scheme, banks can continue to offer temporary mortgage deferrals until 31 March 2021. The extension comes into effect on 27 September 2020, when the original six-month mortgage holiday scheme expires.

Since 26 March 2020, banks have deferred repayments for over 61,000 customers, representing nearly 7 per cent of total consumer lending. Nearly a quarter of that number have already resumed mortgage repayments and the remainder will need to resume payments at the end of September or consider taking up the mortgage deferral extension.

But the RBNZ is warning those considering extending their mortgage holiday to take their long-term financial interests into consideration, saying borrowers need to be aware that interest on their mortgage will continue to accrue during the deferral which could potentially prolong their repayment period.

RBNZ Deputy Governor, Geoff Bascand said, “For many borrowers, resuming or continuing payments in some form will be the most suitable approach, rather than taking up a deferral of their loan payments. A deferral should not be the default setting and it will be up to individual lenders to decide whether to offer one to their customers.”

While the Real Estate Institute of New Zealand welcomed the extension, it says it’s important that borrowers are not buried further into debt.

If you are considering extending your mortgage holiday, or applying for a mortgage deferral, we urge you to seek sound financial advice. Talk to one of our team of mortgage advisers about your options before you go ahead.

The pros and cons

To help you make a more informed choice about whether or not to defer your mortgage repayments for a short time, here are the pros and cons: 

The pros

  • Reduce your monthly outgoings for a short time: Pausing your mortgage repayments could provide some much-needed breathing space in very tough economic times – particularly if you’ve been made redundant or you’re on a shorter working week with a lower income due to COVID-19. In this instance, opting for a mortgage holiday could help take the pressure off your monthly outgoings until you return to your usual working hours or find a new source of income.
  • Better than going into arrears: Taking a mortgage holiday until you’re back on your feet again should be seen as a last resort if you’re facing significant financial hardship from job loss or loss of income. But make sure you have a plan in place to get you back on track when your mortgage holiday ends. 

The cons

  • Repayments are higher after your mortgage holiday: When you resume your mortgage repayments, you could be faced with a higher repayment amount so that you can catch up on your missed repayments. Or you may need to refinance your loan to a longer loan term in order to maintain your pre-mortgage holiday repayment amounts.
  • More interest: Over the term of your loan you’ll end up paying more interest if you opt for a mortgage deferral. That’s because while you take a break from your mortgage repayments, your interest charges will continue to accrue.
  • The cost of your mortgage will end up being higher either due to more accrued interest or a longer repayment term.

Getting help early

There’s no doubt that many New Zealanders will be facing financial hardship in the wake of COVID-19. An uncertain future means many homeowners may need to defer mortgage repayments for a short time. If you are concerned about your financial future and you need a hand navigating your finances, it’s vital you get help early.  

Talk to your lender or mortgage adviser about your options for a mortgage holiday, refinancing your mortgage, or reducing your repayments for a short time. It may be exactly what you need to help you get back on your feet again. Simply complete this online form and a Mortgage Express adviser will be in touch.

Reference:

*https://www.interest.co.nz/banking/106581/banks-offering-options-affected-customers-will-enable-either-new-mortgage-deferral-or

*https://www.rbnz.govt.nz/news/2020/08/reserve-bank-extending-mortgage-deferral-scheme

 
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While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Mortgage Express Limited for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication.

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