The impact of the Covid-19  crisis is gradually taking shape in New Zealand. As Kiwis get-into-terms with the COVID-19 crisis, one can’t help but wonder how it will affect daily living. It’s impossible to ignore the concerns about the financial impact. The  government sanctioned  mortgage holidays as a way out. But is a mortgage holiday really worthwhile?

What other options do homeowners have?

Here’s a look at what you can do to take charge of your mortgage through the Covid-19 crisis.

Taking the Mortgage Holiday

Taking a mortgage holiday means that you take a break from regular payments on your home loan for a predetermined time. However, the interest continues to mount.

In a bid to mitigate the effects of job losses by New Zealand homeowners,  the government moved to secure  a 6-month mortgage holiday scheme with banks. Although not all the details about the scheme are out, one thing is sure, interest will continue to pile.

We recommend that you consider a mortgage holiday as a last resort.

Although the ‘holiday’, will give you reprieve for a short while, interest will continue to pile. After the six-months break, you’ll have to settle a bigger mortgage bill over the long-term. So, try to make the holiday the last resort.

Here’s what else you can do.

Change Your Payment Frequency

How often do you make mortgage payments? Weekly? Fortnightly? Or do you make payments monthly?

If you make payments every week or fortnight, you can relieve the pressure. Reach out to the bank and request to switch to a monthly payment plan. The impact will be mainly on the principle reduction, not the interest. So the bank shouldn’t have much trouble making the change. Plus, the switch will give you a couple of days to get that extra buck.

This may work well especially if you are in business and looking forward to some Accounts Receivables to be settled. However, if you are on a payroll, and facing a salary cut, consider a less speculative option.

Convert Payments to Interest-Only for a Period

Instead of suspending the entire home loan payments under the guise of a ‘mortgage holiday’, suspend the principal payments only. This works best for mortgages that are not structured as table loans.

This way, you continue to pay interests during the crisis period. But the principle stays put.

It may seem similar to a mortgage holiday. However, when you switch to interest-only payments, there’s no accumulation of interest. The mortgage period may stretch but at no extra cost.

Stretch the Mortgage Term

The instalments could also be too big due to a short mortgage term. If that’s the case, you can speak to your bank and request for a longer repayment period. This will stretch out the payments over a longer-term making them smaller. However, this has a somewhat similar impact on your loan as a mortgage holiday. You’ll pay more interest in the long-term.

Refinance to a Cheaper Option

If you are looking at a long term solution, consider refinancing to a cheaper option. With mortgage rates hitting record lows, the thought of refinancing to a cheaper option shouldn’t be far-off.

But don’t work alone. Consult with an experienced mortgage broker. They will help you to evaluate the market and the pros and cons of each option objectively.

Lastly, Withdraw Funds from Your Kiwi Saver

This is like the mortgage holiday move. It should only happen when you are facing financial hardships and should be a last resort.

The government scheme with lenders shortens the mortgage holiday process. However, it doesn’t make it any less expensive. On the other hand, withdrawing from the Kiwi Saver maybe longer, but it comes at no extra cost. Just remember, to make it a last resort.