NZ Mortgage relief during Covid-19 pandemic

The Covid-19 pandemic is having an ever-changing impact on many aspects of our lives. From travel and movement restrictions and self-isolation to business shutdowns and job losses, many of us are facing struggles we’ve never had to face before. 

Many businesses and services have already been forced to close under the Alert Level 4 restrictions put in place to try to prevent the spread  of Covid-19 and many of us are already feeling the pinch when it comes to finances. Especially those with a mortgage. Despite the government’s announced Wage Subsidy Scheme, many will still require assistance to make their mortgage repayments. 

The mortgage holiday scheme

The government has promised those impacted by Covid-19 that they won’t lose their homes due to the economic downturn, offering potentially tens of thousands of New Zealand home owners a six-month mortgage holiday. The scheme is designed to reassure homeowners as the country locks down for at least four weeks. The move has been welcomed by banks and is also predicted to help prevent a “fire sale” in the housing market.

Taking a mortgage holiday

A mortgage holiday is when you stop contributing or making any repayments on your mortgage, but interest continues to mount. It’s essentially a deferral of your repayments. Banks are offering packages that include up to a six-month principal and interest payment holiday for mortgage holders whose income has been affected by the economic disruption caused by Covid-19. 

If you have been impacted, you will be required to provide evidence of your change in circumstances. You may only need a letter from your employer confirming you’ve had a pay cut, been asked to take unpaid time off, or been made redundant, but it will depend on the bank. More than 10,000 New Zealanders applied for a mortgage holiday in the first few days after the option was announced. Within a week, that number jumped to 30,000. 

When do I pay it back?

Whatever your current mortgage repayments are, each one you miss will be added back onto your total mortgage. You’ll also keep being charged interest on that money, even while you’re not paying it. While the deferral is being offered for up to six months, you don’t have to take the full six months. You could ask for just three months if that’s all you need. It’s also important to remember that the mortgage holiday isn’t your only option, it’s just the most extreme one.

What are my other options?

If you’re worried about your job security, you can reduce your payments before stopping them entirely.

• Extend your mortgage term: If you have twenty years left to pay your mortgage off, you could talk to your bank about spreading the payments over 30 years. It would make your current payments cheaper.
• Pay interest only: Paying only the interest would stop your mortgage growing by too much, while allowing you to pay reduced payments and ease your current financial situation.

The unprecedented nature of the pandemic means that banks are friendlier than ever and they want alternative options to work, because having half the country default on their loans at the same time is a terrible situation for them. Many banks have streamlined the process for applying for a mortgage holiday or alternative payment plan. Start the conversation with your bank early  so you can make the changes you need to before it’s too late.