Mortgage holidays: What you need to know

If you’re struggling to pay your mortgage, one option is to take a mortgage holiday. We look at the pros and cons of putting your mortgage on hold.

What is a mortgage holiday?

A mortgage holiday (sometimes called a home loan repayment deferral) lets you temporarily stop making repayments on your home loan if you’re under financial pressure.

How does a mortgage holiday work?

Each bank has its own process and eligibility criteria for mortgage holidays. You’ll normally fill in an application form on your bank’s website. The bank will then contact you to discuss your circumstances. You will only be able to take a mortgage holiday for a set period.

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. This means it will cost more and may take longer to repay your mortgage.

What should I consider before applying for a mortgage holiday?

• Don’t apply for a mortgage holiday just 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 the amount of your regular repayments, rather than applying for a mortgage holiday. This means you’ll still be reducing your debt.

• If your fixed-rate loan is coming up for review, and interest rates are coming down, so you should be able to get a lower 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 can I do?

You can make a complaint to the Banking Ombudsman.

The ombudsman can look at most types of complaints about banks.

You can also complain to the Commerce Commission.

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 3-month mortgage holiday could be better for your financial situation than taking a 6-month mortgage holiday.

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

To find out about other options, read our report What to do if you can’t pay your mortgage.