Is a Mortgage Holiday a Help or Hindrance?
The government has introduced stimulus packages so that the New Zealand economy can function relatively normally through and beyond the COVID-19 crisis. One way they have chosen to do this is by introducing a ‘mortgage holiday’ for homeowners. It reduces the pressure on homeowners who have a mortgage, helping them with their short-term cash flow.
This could be beneficial. However, it is important to remember that the term ‘mortgage holiday’ is not as pleasant as it suggests. A mortgage holiday will still require that your mortgage be repaid in full, so it may be better defined as a ‘mortgage deferral.’
Although this can provide much needed financial relief, the downside is that after the mortgage holiday, loan repayments will likely be higher unless your loan term is extended.
Are You Eligible?
If you have been impacted by COVID-19 you are likely to be eligible for a mortgage holiday, for up to 6 months. As different lenders take different approaches to determining eligibility see your bank’s website for further details and eligibility criteria.
How Does It Work?
A mortgage holiday works by postponing your normal monthly payment until a future date. The interest payments that would otherwise be paid are added to the principal sum. This increases the amount you owe and will add to the length of your mortgage term.
In other words, a mortgage holiday does not allow for people to avoid any of the cost of their mortgage. In fact, because the deferred interest payments are added to the overall principal sum, the amount owed grows as over time the accumulated interest payments attract interest themselves.
What Is The Benefit?
The benefit is that you are not defaulting on your mortgage; you have reached an agreement with your bank that avoids a default situation. You also have the flexibility of using the money otherwise spent on repaying your mortgage on what you need to during this difficult and uncertain time.
Options such as extending the term of your mortgage or paying interest only payments may be more appropriate depending on your circumstances. Your bank will be able to provide you with these alternatives and can help you to decide what your best option is.
Unsure of Whether a Mortgage Holiday is in Your Best Interests?
If you are considering a mortgage holiday and need financial advice or have any questions, you should contact your lender or mortgage adviser to discuss your options.
If you need independent legal advice from an experienced property lawyer, you have any questions about an agreement or are unsure about your legal obligations; it’s best to talk to the professionals. You will benefit from the experience and advice of one of our HomeLegal property lawyers. Contact the HomeLegal team for all your property conveyancing needs or ring us on 0508 HOMELEGAL today.