Do I need a mortgage holiday on my home loan?
Banks are coming out offering mortgage deferrals to give home owners some breathing room.
On August 17, 2020, the Reserve Bank announced that the mortgage deferral scheme will be extended.
The scheme, which was due to expire on September 27, will now run until March 31, 2021. This extension applies both to Kiwis seeking to lengthen pre-existing deferrals, and to those applying for a deferral for the first time.
Do I need a mortgage holiday on my home loan?
New Zealanders whose financial situations have been impacted by Covid-19 may be able to defer their home loan repayments by up to six months, or make 'interest only' payments for up to 12 months.
If this is you, you should have no hesitation in applying for a mortgage holiday or deferral in the coming weeks, says senior Auckland mortgage advisor Geoff Bawden.
A mortgage deferral or repayment holiday allows you to put off paying the principal and the interest owed on the home loan for a period. Interest on the loan would still accrue during this time, and will be added to the loan, extending the time it will take to pay it off.
“In my opinion, it should be a relatively simple process,” says Mr Bawden.
His belief is, if you’re a mortgage holder who has a good history with the lender, you have always paid your home loan in a timely manner, and something unforeseen has happened to your circumstances, it's reasonable to ask for a mortgage holiday.
“People deserve the opportunity for some leniency,” adds Mr Bawden.
At the moment, he’s seeing banks asking too many unnecessary questions of mortgage holders in the pursuit of responsibility, but it’s inappropriate in a situation of Covid-19 job losses where empathy is required, he says.
The Bawden Consulting advisor had a situation where a homeowner who was the primary breadwinner working in a tourism-related industry, was laid off. He had an exemplary history with the bank and the lender came back to ask if his wife was working and what her income was.
“I think that’s inconsiderate stress on customers, when instead we should have some simple guidelines to help people get their mortgage holiday,” says Mr Bawden
The mortgage advisor had some inquiries from people who are not affected too badly but are trying to take precautions on mortgage repayments in case the situation worsens.
Right now, it’s about preserving what you’ve got, he says.
“If you've got equity in your home and are asking for a mortgage holiday or to pay interest only, no one’s taking a risk here. The mortgage interest is just accrued, the bank’s not giving anything away,” says the mortgage advisor.
“The reality is these are unprecedented times. People want to know they’ll come out the other end,” he adds.
Other options for those worried about losing your jobs
There are other routes if you’re worried about mortgage payments in an environment of multiple job losses. It may be that there’s no danger of you losing your job, but you have taken a pay cut or are just uncertain about what the future holds and want better cash flow.
Craig Pope from Pope & Co Mortgages is talking to people with home loans about looking at making interest only repayments, or making lower payments, if they’re still in their jobs.
Banks have got to be careful, they don’t want to give out mortgage deferrals “willy nilly” so people need to stop and think before pulling the trigger, he cautions.The banks are prioritising those who have actually lost their jobs on giving mortgage deferrals, he says.
“It is a hardship situation, you only really want to take it as a last resort,” says Mr Pope. It can affect your ability to borrow down the track, he adds.
Another option if you have had a mortgage for a while, is to look to extend the term of the loan in order to make lower payments.
Pope has been encouraging people to pay off more of their mortgages during the low interest rate period and for this group they could drop to a minimum payment if they were feeling the crunch right now, he suggests.
What next for those of you with pre-approved home loans
Meanwhile for those with pre-approval to buy a home, if you’re relying on KiwiSaver to help with your house deposit you should be keeping an eye on your KiwiSaver levels.
They have generally dropped drastically and will cut some people out of buying for a while, says Mortgage Planners’ Gavin Lendich.
For a couple buying their first home, the KiwiSaver deposit could be providing as much as $80,000 or more of their deposit, so it’s a substantial loss.
According to Wellington mortgage advisor, Jenny Cheevers, KiwiSaver funds will take a bit of rebuilding after Covid-19 market fluctuations.
On the bright side, she has clients scheduled for an appointment this Friday who are ready to be pre-approved and that is going ahead.
“They’re still keen to get themselves set up for after the Covid-19 lockdown,” she says.