With Covid-19 putting a halt to most economic activity in New Zealand and overseas, your finances may have been impacted, and with them your ability to repay the mortgage in the short term.
If so, don’t forget that we’re in your corner. As your mortgage advisers, we can help you review your circumstances and find type of assistance your lender is able to offer.
Depending on your lender, this help may come in different forms. Read on for some common assistance options, and of course, please get in contact if you’d like to know what’s available and appropriate for your situation.
Mortgage repayment ‘holidays’
Mortgage holidays – you may have heard this term before. This option has always been available for financial hardship, but as part of its response to Covid-19, the NZ Government has been working with lenders to make applications more efficient.
Before taking a step in this direction, it’s important to know what this solution entails.
Firstly, the term ‘holiday’ can be misleading: “mortgage repayment deferral” is probably more accurate. The reality is, while you can press pause on your repayments (usually, for a period of up to six months), interest will continue to stack up.
In other words, while a mortgage payment deferral can free up some cash in times of need, your loan amount will increase, potentially adding up thousands of dollars over the term of your mortgage.
To pay off this extra, you’ll need to either increase your loan repayments once the pause is over or – if you’d like to keep your current repayment level – extend your mortgage term.
Keep in mind that terms and conditions vary from lender to lender, so make sure you contact us if you’d like to understand whether this option is appropriate for you, if you’re eligible and what your lender would require. You may find out that there are other more fitting solutions on offer.
Depending on your lender and what type of support they’re offering, you may be able to switch to an interest-only mortgage for a while. You will still make regular repayments, but the amount you will be required to pay will reduce as you’re only paying the ‘interest’ part of your loan.
Once again, while this solution can provide you with much-needed respite, there are some drawbacks to consider.
The key thing to know here is that, because you’re not paying the ‘principal’ part of the mortgage, your loan amount won’t reduce. After the interest-only period:
- You must change your mortgage back to ‘principal & interest’ repayments, or repay the mortgage in full;
- You’ll need to choose to either a) increase your loan repayments and keep the same loan term, or b) extend the loan term (where possible) and keep the current repayment levels.
Plus, if you’ve only just started paying off your mortgage, you may find that switching to interest-only doesn’t provide significant relief. That’s because, at the beginning of your loan, the majority of your mortgage payment goes towards paying off the interest portion.
Once again, please give us a call to find out whether or not ‘interest only’ is the best-suited step for your financial circumstances.
Loan term extension
Your lender may also offer you the opportunity to extend your loan term. This way, you will still make regular repayments towards both principal and interest, but the repayment amount itself will reduce.
Generally speaking, this option is only possible if your loan term stays under 30 years from your draw-down date. Plus, as welcome as the short-term financial relief may seem, it’s important to remember that the longer your term is, the more interest you’ll pay in the long run.
Like to learn more? Please get in contact with us: we can help you understand what a loan term extension could mean for you, now and over time.
Low interest rates
With interest rates being at their lowest-ever level, it may be worth exploring your options in this space as well. If you’re due to refix or can take advantage of a low floating rate, you may be able to save some money in the short term.
And remember, if your budget allows it, lower rates can always be an opportunity to pay off your home loan faster. You may consider fixing at a lower rate and keeping your repayments at the same level, or making lump-sum repayments if you’re on a floating-rate mortgage.
Like to learn more about these mortgage repayment strategies? Please don’t hesitate to contact us: we can help find the most appropriate solution for your goals.
We’re here to help
Need help? We’re just one phone call away and look forward to answering your questions. Whether you’re looking for mortgage support or would like to know how to make the most of low interest rates, we can help you get through this uncertain period.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.
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