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Mortgage holiday: Can you put your mortgage on hold?

Most lenders have a policy where they offer a mortgage repayment holiday for a temporary period. Here's how to find out if you're eligible.

What is a mortgage repayment holiday?

A mortgage repayment holiday is a temporary period when your lender pauses your monthly loan repayments. Many people accessed mortgage repayment holidays during the pandemic. This is helpful for borrowers who are struggling to make repayments for reasons like:

  • Unpaid parental leave, where you're not earning an income for a set period.
  • Carer's leave, if you're taking care of a loved one and not working for a set period.

It's usually only an option for a few months, 6 months at the most. Also, the payments you miss aren't "forgiven" – you still have to repay the full loan amount after the repayments holiday ends. So either your loan period will be extended by the same amount of time as the repayment holiday, or your mortgage repayments will increase slightly for the rest of your loan.

It's also important to know that your lender will continue charging interest even when you're not making repayments.

4 ways to pause or reduce your home loan repayments

There are a few options for pausing your home loan repayments.

  1. Temporary mortgage payment suspension through a hardship variation. If you are unable to keep up with your regular repayments because of temporary financial stress, you can apply to your lender for a hardship variation. If your lender agrees, they will pause your repayments and add all interest charges on your home loan to the end of the loan term. This can extend your loan term and add thousands of dollars to your original loan amount, but could keep you from losing your home.
  2. Temporary mortgage payment reduction. If your income has been reduced temporarily, such as a spouse losing a job and leaving you with only 1 income, you may be able to apply for a temporary reduction in your mortgage payments. This means you will make partial repayments for a set period. After that your repayments will go back to normal and you'll also have to make up the repayments you've missed.
  3. Temporary mortgage payment suspension using your redraw facility. If you have been making extra payments off your mortgage balance, you may find that you have funds available. This is known as a redraw facility. You may be able to use these extra funds to substitute making mortgage repayments. Note that not all mortgages have a redraw facility.
  4. Switch to interest-only repayments. If your mortgage has principal and interest repayments, you might be able to temporarily switch to interest-only repayments. This reduces your monthly repayments significantly in the short term because you only have to pay the interest charged on your loan. However, over time this will cost you more because you will need to repay the principal on your mortgage eventually.

How long can my repayment holiday be?

Most lenders consider your individual circumstances when setting up a repayment holiday. For many lenders, the upper limit on a mortgage repayment holiday is from 3 to 6 months.

Be aware that while your repayments are reduced or paused, interest is still accruing on the principal of your home loan. This means you'll eventually need to either increase your repayments or the length of your loan term to make up for the difference.

Will a mortgage holiday affect my credit score?

If you negotiate a repayment pause with your lender, then missing repayments during that period of 3 to 6 months shouldn't affect your credit rating.

The Australian Banking Association (ABA) confirmed during the pandemic that repayment holidays taken out during that period, would have no late payment recorded against the borrower's credit file.

But if you're unable to make your loan repayments after the mortgage holiday ends, then it could impact your credit score.

What to do if you missed a mortgage repayment

How much does a mortgage pause really cost?

Let's assume your mortgage balance is $300,000 with an interest rate of 6.2%. Your monthly repayments are $1,838 per month, which you pay comfortably for the first 12 months. After this time, you've managed to get your home loan balance down to $296,451.40.

But then you lose your job and you need to take a 3-month mortgage holiday. During your repayment holiday, your lender adds the monthly interest charges onto your loan balance.

The interest that was added to your home loan balance during that first month will also have interest charged on it during the second month. And then both amounts will have interest charged on them during the third month.

  • Month 1: $1,531.66 is added to your loan balance.
  • Month 2: $1,539.11 is added to your loan balance.
  • Month 3: $1,547.06 is added to your loan balance.

By the end of your 3-month holiday, you will owe an extra $4,617.83 on top of your previous loan balance of $296,451.40. That means you now owe $301,069.32.

And because your loan balance is now higher but your loan term remains the same (you have 29 years left) your repayments will increase from $1,838 to $1,865 per month. This is only $27 per month. But over the life of a home loan that's almost $10,000 extra in interest costs.

How to apply for a mortgage holiday

Every bank and lender has its own hardship assistance schemes, each with different requirements. You'll generally need to apply for assistance either online or via phone.

Then the lender will assess your position and, if successful, help you set up a suitable repayment holiday. Your lender may suggest other alternatives too.

Big 4 bank mortgage holiday policies

The Big 4 banks have programs in place to help home loan customers facing financial hardship.

  • ANZ. ANZ allows customers to take a mortgage repayment holiday depending on their circumstances. During the repayment holiday, interest will still accrue on the outstanding principal. Once the repayment holiday is over, you can either increase your repayments or extend your loan term to cover the extra interest that has accrued.
  • Commonwealth Bank. The bank offers repayment relief on a case-by-case basis. A Commonwealth Bank representative can work with you to find options, including extending your home loan term to reduce your repayments.
  • NAB. Customers with NAB can get individualised hardship agreements. NAB has a customer team who specialises in putting together payment plans or variations. Any variations will require you to make up payments in the future, but NAB's specialists will help you put together a plan to catch up on your commitments.
  • Westpac. If you're experiencing financial hardship, you can contact Westpac to set up a hardship plan.

Remember that there is always help available for financial and emotional distress.

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