- Many banks offer repayment holidays where you temporarily pause your repayments, though not all do.
- Other avenues including partial payments, interest-only payments and accessing your redraw.
- Keep in mind that repayment holidays see the interest continue to accrue, which can add on to the total mortgage cost.
Mortgage holidays, or deferred home loan repayments, are a decision you make with your lender to temporarily pause the regular repayments on your home loan while you find your feet. They typically last for three to six months. Another option might be to go interest-only for a while.
This is typically done out of hardship, such as an unexpected loss of income. They became more in-vogue after the Covid pandemic where mortgage holidays were more commonplace as people lost their jobs and there was a lot of uncertainty in the market. These days they usually start with a chat to your lender about the best steps forward.
However, mortgage holidays are not true 'holidays', and interest still likely accrues on the loan in that time. This means you'll pay more in interest, ultimately, and/or potentially take longer to pay off the mortgage.
Deferred repayments also appear on your comprehensive credit report - but provided you've gone through the right channels and the holiday is short-lived, your score might not be negatively affected.
Also Read:
How to Get a Mortgage Repayment Holiday
It starts with a call or message to your lender. This usually happens after a period of hardship, and you might have to show you're in hardship. This can include anything from an unexpected job loss, the main income earner dying or becoming permanently/significantly disabled, prolonged cost of living stress, or in the case of pregnancy/having kids and parental leave.
Arrangements are usually done on a case-by-case basis, though some other lenders may advertise the fact you can 'pause' your repayments:
- One such example is Bank Australia, which promotes 'Eco' pauses in the case of adding green additions to the home such as solar, and a 'Parental' pause in the case of pregnancy. Customers in the latter scenario can also halve their repayments.
- Not all lenders offer repayment holidays, especially smaller ones. For example, Unloan does not.
By default, lenders are obliged to ask you, upon application, if you foresee any significant life changes that would hamper your ability to repay the mortgage - such as having kids. However, life happens; lenders are regulated under the National Consumer Credit Protection Act of 2009 and must provide hardship arrangements.
Does a Mortgage Break or Holiday Affect Your Credit Rating?
Provided you've formally arranged it with your lender and not just stopped paying, it shouldn't. This is provided the holiday is only short and temporary. Many banks will only extend a three-to-six month deferred payment period for that reason.
Experian Australia & New Zealand's general manager Tristan Taylor said unless individuals have made special arrangements with their lender, the system acts "as per normal".
"Missing credit repayments will still negatively impact credit scores, which could affect future credit applications," he told Savings.com.au.
"Ensure you contact your financial service provider to discuss your options if you're concerned."
Is a repayment holiday a good idea?
If it comes down to putting food on the table or pressing pause on the mortgage, it's probably a good idea to choose the former. Many lenders are pretty obliging if you get on the front foot with them, rather than just stop paying your mortgage.
Homes are costly things, and your lender would rather see you get back on your feet, rather than foreclose your home as that is a costly avenue for them as well.
However, mortgage holidays are not to be taken lightly. It might be tempting to treat it like a 'vacay' but it's not - interest still accrues, and your repayments could be higher as they are condensed into a shorter timeframe.
In many cases, the interest repayments are deferred until the end of your loan period, which ordinarily sees you paying more principal than interest. This can pose equity problems.
Mortgage Holiday Scenario
Mort Gage and Holly Day are long-term spouses who have a mortgage together. Mort is the main breadwinner through his big job at the cracker factory. However, he suffered a pretty nasty knee injury that saw him waylaid from his job for a while and things are a bit tight.
They don't have much of a buffer and Holly's job won't cover living expenses and the mortgage on its own. So, rather than falling behind on the mortgage, they proactively call their bank and ask for a mortgage holiday. It's granted for four months.
- Their home loan balance is $600,000 and their interest rate is 5.50% p.a.
- After the first month they'll accrue $2,750 of interest and increases from there because interest is growing interest.
Here's how it looks after four months, keeping in mind exact figures can differ due to the amortisation schedule that sees greater amounts of interest paid towards the start of the loan life:
Interest Bill Mortgage Balance After Interest Accrues Month 1 $2,750 $602,750 Month 2 $2,762.60 $605,512.60 Month 3 $2,775.30 $608.287.90 Month 4 $2,787 $611,075 Total $11,075.90 If they had $600,000 left they would ordinarily pay $3,684.53 a month over 25 years. Now that's bumped up to $611,075, they'd pay $3,752.54 a month when they resume P&I payments, or just over $9,000 extra payable over the life of the loan.
Alternatives to mortgage repayment holidays
There's lots of other avenues you could explore before pressing pause - a repayment holiday should be considered nearly a last resort, and there might be some other ways you can wrangle your finances through a tough patch.
Again, many of these likely involve a chat with your lender first - so be careful not to go rogue.
Go interest-only
Principal payments, especially if you are deep into your mortgage, make up a sizeable chunk of the overall 'P&I' scenario. You could reduce your repayments significantly by going 'IO' for anywhere from 1-5 years, which is commonplace with many lenders. Some allow up to 10.
However keep in mind that this will increase the overall cost of your loan, and also condense principal payments into a shorter timeframe, seeing a larger payment after the IO period, which could in itself be a shock.
Extend your loan term
You may be able to extend your loan term, especially if you haven't maxed out at 30 years already. Some lenders even offer 40-year home loans. This will reduce your repayments but ultimately result in more interest paid.
Reduce repayments to the minimum
If you've been paying extra, or your repayments have been the same for a while despite interest rate reductions, chances are you're paying more than the minimum. While this is great for saving on interest costs, if you need to stay afloat then you could reduce it back to the minimum to free up some cashflow.
Access your redraw or offset
In a lot of cases, extra repayments made historically into the mortgage sit in a redraw account. You can often apply to withdraw some or all of this money. This will see your savings on interest cost dwindle and your loan term potentially pushed back out, but it can result in a nice chunk of change.
Consider refinancing
Refinancing can involve switching to an entirely new lender or asking for a better deal from your current one. If it's been a few years since you've looked at your rate, chances are it's not the sharpest it could be. You can also negotiate other terms such as pushing your loan term back out. However refinancing comes with a couple of major caveats:
- There are usually fees to refinancing - you might need to pay a discharge or loan variation fee, or setup fees with your new bank. Hopefully your old and new bank don't have many or any of these!
- Good rates are usually contingent on you having a good financial position, so if you've lost a job or fallen pregnant, your borrowing power could be hurt and you might be better sticking out the current loan.
Nonetheless, if you're in the market to refinance, consider some of the offers below.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.94% p.a. | 5.98% p.a. | $2,978 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
5.89% p.a. | 5.80% p.a. | $2,962 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
5.99% p.a. | 6.02% p.a. | $2,995 | Principal & Interest | Fixed | $0 | $0 | 60% |
| Promoted | Disclosure | ||||||||||
5.93% p.a. | 5.93% p.a. | $2,975 | Principal & Interest | Variable | $0 | $395 | 70% | Disclosure |
Mortgage Hardship Key Contact Info
The banks' hardship helplines typically operate on usual AEST business hours.
CommBank Hardship Number - 13 30 95
NAB Hardship Number - 1800 701 599
Westpac Hardship Number - 1800 067 497
ANZ Hardship Number - 1800 351 548
Debt Helpline (AFCA) - 1800 007 007
Lifeline - 13 11 14