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Mortgage Holiday Scheme: A Quick Guide

March 31, 2020
Tara Toman

We know you’d rather be thinking about another kind of holiday, but last week the reality of COVID-19 in New Zealand hit hard and has some homeowners understandably worried about how to make their mortgage payments. It’s an unsettling time and, for some, a mortgage holiday may be a viable option.

What is a mortgage holiday?

An agreement between lender and mortgage holder whereby the mortgage holder is temporarily allowed to stop making repayments to their home loan.

What is different about this mortgage holiday scheme?

The government has proposed a mortgage holiday (or home loan repayment deferral) which puts your mortgage payments on hold for at least 6 months.

Generally, a mortgage holiday can be taken for 3 months but, given these exceptional circumstances, the government has extended it to help mitigate some of the impacts of COVID-19 on homeowners. The same applies to holiday home and investment property mortgages.

What implications does this have for future payments?

While payments will stop during the 6 month “holiday”, interest will still accrue and be added to the principal amount of your loan. This means you will end up paying more once the holiday finishes.

If you are wanting to pay your mortgage off faster, keep in mind that this could mean you end up taking longer to pay down your mortgage overall, unless you increase your payments after the holiday. However it does provide homeowners with immediate relief, particularly if suffering from a drop in income due to COVID-19.

What are a few of the options that my bank may offer me?

Details of how this will look will vary with banks and your mortgage structure. They are likely to have different eligibility criteria which will be available on their individual websites.

Your bank is also likely to offer you a range of alternatives before suggesting a mortgage holiday. These may include but are not limited too:

A mortgage repayment reduction - you may be paying more than the minimum requirement for your loan and can temporarily reduce these payments

Interest-only payments - for a short period of time, you pay only the interest instead of the heftier principal repayments

What next?

There are many other options to consider before taking a mortgage holiday but if you are in a position where you feel it is necessary, talk to your bank to find out more. In some cases, you may be able to apply online.

Bachcare cannot advise on whether a mortgage holiday is right for you - talk to your bank directly if you are concerned about how you will make future payments due to COVID-19.

Want to take the stress out of managing your holiday home? Bachcare can help!

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