Following widespread economic breakdown due to the coronavirus (COVID-19) pandemic, the government has undertaken a raft of measures to safeguard Kiwis. Among the actions was a deal with retail banks to extend to homeowners a 6-month mortgage holiday.

What is a mortgage holiday?

A mortgage holiday happens when you take a break from making your regular mortgage payments. In most cases, lenders extend such flexibility when the homeowner encounters financial hardships and reaches out for assistance. In this case, homeowners whose sources of income have been adversely hit by the coronavirus (COVID-19) pandemic have access to a 6-month holiday.

You can take a “full holiday” and freeze the entire payments for the duration. Or you can possibly lower payments.

Who is eligible?

Ordinarily, lenders extend mortgage holidays to homeowners facing financial hardships. The lender would request for evidence to support this, and a statement of status to back up the request. However, homeowners whose income sources have been affected by the pandemic are now potentially eligible. It may even be potentially eligible if you have concerns but may not have experienced a drop yet.

The government has agreed with retail banks to make special concessions for this group. This is in line with the standard eligibility criterion – and the aspect is the homeowner may be experiencing financial hardships.

However, banks will still uphold the responsible lending code and assess your financial status. They will also review your previous payment behavior and the type of contract. Some of the concessions the banks could make under the COVID-19 crisis include:

• Disregard how long you have had the mortgage
• Set aside time limit between two successive mortgage holiday applications.

Ordinarily, dark spots on your payment history would make it harder to qualify for a mortgage holiday. However, we are facing an unprecedented crisis. Banks could give homeowners with bad credit history some leeway. So don’t be shy, reach out to your lender and make the request.

Pros and cons of a mortgage holiday

Like any vacation, there are good sides and bad sides to a mortgage holiday. Some of the pros are:

• It relieves some of the financial pressure for a while.
• If the loss, or dip, in income is temporary, it’s a sensible move to maintain cash flow.

The cons of a mortgage holiday are:

• The mortgage still accrues interest.
• When the holiday period ends you will be facing a larger mortgage balance and interest to pay.
• It’s not a long-term solution, especially if the income loss is permanent.

If the loss in income is permanent, consider an alternative long-term solution. Reach out to a mortgage broker for help.

Applying for a mortgage holiday

You can reach out to your lender and request the mortgage holiday. But keep in mind, the lender has to assess each case on its merit and uphold the responsible lending code. However the understanding is that it is reasonably flexible to get one.