Mortgage Holidays: When You Might Need One

If a mortgage payment may become unaffordable, contact the lender early. It may discuss a voluntary repayment change, while a separate formal hardship process is available for qualifying unexpected life events.

A repayment holiday is an agreed postponement of payments for a set time; some arrangements instead reduce payments. It does not forgive the debt. Confirm how interest, fees, the balance, later payments and the loan term will be treated.

How Mortgage Holidays Work in New Zealand

The lender's written arrangement should specify the postponement or reduction period, what remains payable and when normal or revised payments begin. There is no market-wide duration.

A changed repayment plan is likely to cost more through extra interest or administration fees. Ask whether interest continues, whether it is added to the balance, and whether the term or later payment amount changes.

The cost depends on the actual balance, rate, fees, duration, compounding and later repayment schedule. Ask the lender for a written comparison showing payments and total amount payable before and after the proposed change.

When to Consider a Mortgage Holiday

Consumer Protection lists unexpected events such as job loss, serious illness or injury, relationship breakdown or a partner's death as examples for formal hardship. Other events and voluntary lender assistance need individual assessment:

• Job loss or redundancy: When you need time to find new employment without the pressure of immediate mortgage arrears.
• Serious illness or injury: Medical situations that reduce your income or create unexpected expenses.
• Relationship breakdown: The transitional period during separation when finances are being restructured.
• Natural disasters: Ask the lender or a financial mentor whether the event and resulting payment difficulty fit formal hardship or another assistance process.
• Business difficulties: Consumer-credit hardship rights may not apply to business or investment lending, so check the loan purpose, contract and available lender process.

A repayment holiday postpones rather than removes payments. The lender will assess the request under the applicable voluntary or formal process and may seek information about income, costs, the event and the requested change.

The Application Process

Under the Credit Contracts and Consumer Finance Act, consumer lenders must have a formal hardship process. They must follow statutory response steps and give a decision and reasons, but they do not have to approve the requested change.

Apply for formal hardship in writing as soon as payment difficulty arises. State the change requested, explain the unexpected life event and include supporting proof; eligibility limits can apply once payments are overdue.

• Be honest and detailed about your situation.
• Provide documentation supporting your hardship claim.
• Give current income, cost and payment information the lender reasonably requests.
• Respond promptly to any requests for additional information.
• Ask about all available options, not just a full payment holiday.

Alternatives to Consider

Ask the lender to compare the available changes. Suitability and total cost depend on the contract and written offer:

Interest-only payments: If approved, principal is not scheduled to reduce during the period. Confirm fees, the interest calculation, expiry and later payments; do not assume the balance cannot change.

Extending the term: An approved extension can reduce scheduled payments but can increase total interest. Compare it with other written options rather than assuming it costs less than a repayment holiday.

Partial payment reduction: A lender may agree to smaller payments. Confirm how much goes to interest or principal and how the balance, term and later payments change.

Revolving credit: Drawing available credit creates or increases debt under that facility. Compare its rate, fees, limit and required payments; do not assume it is cheaper or suitable.

The Long-Term Impact

Ask how the agreed arrangement, any arrears and payment reporting will be recorded. Check your credit report and correct errors; the article cannot predict a particular score effect or duration.

Future credit decisions depend on the lender's assessment and the information then available. Do not assume a particular refinancing decision or term because a repayment arrangement occurred.

Before the arrangement ends, confirm the balance, next payment, frequency, term and any catch-up amount. Later payments may rise or the term may extend, depending on the agreement.

Getting Help

MoneyTalks (0800 345 123) provides free support and can connect people with financial mentors who can help with a budget, rights and lender communication. A regulated mortgage adviser can explain services within their stated scope and remuneration.

Act early because formal hardship applications have time limits and other repayment changes require lender agreement. Ask for each available option, its approval conditions and its written short- and long-term cost.