Life has a habit of throwing up financial challenges. Some are planned, such as maternity/parental leave or a career break. Others are unexpected, such as an accident or illness.

Whatever the reason, we can ask your lender on your behalf to hit the pause button on your mortgage repayments or reduce the amount you pay for an agreed period.

Repayment pauses can come in a range of shapes and sizes, depending on the lender and your personal circumstances.

Some lenders may allow you to swap to interest only payments. Some may let you reduce your payments by up to 50% of your current repayments, while others may allow you to take a short break from making payments altogether.

Not all lenders (or loan types) offer repayment holidays. You will need to read the terms and conditions on your loan documents.

While there is no one-size-fits-all, there are common criteria for you to qualify.

Generally:

  • You need to be at least 12 months into your loan and have a reasonable track record of making your mortgage repayments on time.
  • Lenders may want you to have a loan to value ratio (LVR) of 80% or less (you need to own at least 20% of your home).
    Be wary of this condition in a falling housing market.
  • While you may have started with an acceptable level of equity, your LVR may increase due to falling property prices, even if you’ve been paying down your debt.
  • Some lenders may only allow a repayment holiday if you are ahead on your home loan and may require you to dip into these funds first.
  • If you do pause your repayments, your lender will want to know how you plan to get back on track.

Ideally, they will want evidence you have a job to return to when the pause finishes.

This may all sound great, however there are costs associated with pausing your loan!

You didn’t think the lenders were going to do this for free did you?

  • The interest you are not paying is accrued on top of your existing mortgage. As this makes the mortgage larger each month, the interest also increases each month.
  • If you want to maintain the existing term of your mortgage, the lender will want you to compensate for the additional interest accrued. Your repayments will increase once the repayment pause ends.
  • You will end up paying more interest over the life of the loan.
  • If you refinance to another lender at the end of the pause, your new lender will require proof from the existing lender that the pause was approved and you were not just missing repayments.
  • While payments are paused or halved, you may not actually be able to refinance.
  • The pause will appear on your credit file under the Repayment History Information (RHI).

Before contacting your lender, reach out to us first to see if a repayment holiday is the right option for you.

Disclaimer: This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances. Your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances. ©2023