Find out what a mortgage repayment holiday is and if it could help you out with Savvy.
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You may not have heard of a mortgage repayment holiday, but it’s one option that may be available to people who are experiencing mortgage stress. Read more about what a home loan repayment holiday is, and if there may be other options available to you, right here with Savvy. You can also compare your options to find the right lender for you.
A mortgage repayment holiday is an arrangement whereby a lender allows a borrower relief from paying their mortgage repayments for a set period of time (usually between one and six months). This ‘mortgage holiday’ is usually granted to customers who are experiencing mortgage stress or who have just suffered a financial setback such as a loss of income due to illness or redundancy. It’s designed to allow the borrower some respite from having to find mortgage repayments and hopefully provide the customer time to get back on their feet, find another job or recover from the financial setback they’ve suffered.
However, a mortgage repayment break doesn’t mean you won’t have to repay the money you owe or the amount you would’ve paid during the mortgage ‘holiday.’ Once your home loan repayments restart, you’ll have to pay extra for the next few months to make up for the repayments you missed during the holiday. This will mean the term of your loan remains the same, so you will end up paying off your mortgage in the same time period as your original loan agreement.
For example, let’s say you usually pay $400 a month on your home loan repayments. Your lender allows you a two-month mortgage holiday because you injured your back and were unable to work for that time. This will mean you don’t have to make any mortgage repayments for two months, but will still owe the $800 you would’ve repaid in that time.
When you return to work, your repayments may be increased from $400 a month to $600 a month (an extra $200 a month) for the next four months so that you repay the $800 you missed paying during the mortgage holiday. After this period of higher repayments, you will be back on track to pay off your loan in the same period of time as originally agreed and your repayments will resume to their normal $400 a month.
As an alternative to making additional payment to catch up on your loan, you could agree with your lender to extend the term of your loan, leaving your repayments the same but giving you more time to pay off the loan. This will usually involve refinancing your mortgage.
That will depend on your lender. Not all lenders offer the option of taking a mortgage repayment break per se, so it will depend on what hardship provisions your particular lender has in place. Under the National Consumer Credit Code all lenders are obliged to consider hardship repayment variation if you have a reasonable cause, such as sudden illness or unemployment.
The definition of mortgage stress varies slightly between lenders, but it is generally agreed that if you are paying more than one third (or 33%) of your take-home pay on your home loan repayments, you may be experiencing mortgage stress.
If you’re suffering from mortgage stress, it’s very important to contact your lender as soon as you realise that you may not be able to make a home loan repayment. It’s far better to contact your lender and let them know you’re struggling rather than fall behind with your mortgage repayments, which could trigger mortgage default legal action.
If you’re struggling to meet your home loan repayments, you do have several options available to you, depending on the cause of your mortgage stress. You could:
Savvy can assist with many of these options, comparing loans and presenting you with clear, accurate and up-to-date loan comparison information side-by-side, which can help you make the best financial decision to assist you during a difficult period in your life.
Quantum Savvy Pty Ltd (ABN 78 660 493 194) trades as Savvy and operates as an Authorised Credit Representative 541339 of Australian Credit Licence 414426 (AFAS Group Pty Ltd, ABN 12 134 138 686). We are one of Australia’s leading financial comparison sites and have been helping Australians make savvy decisions when it comes to their money for over a decade.
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For more information about us and how we conduct our business, you can read our privacy policy and terms of use.
© Copyright 2024 Quantum Savvy Pty Ltd T/as Savvy. All Rights Reserved.
© Copyright 2024 Quantum Savvy Pty Ltd T/as Savvy. All Rights Reserved.
Quantum Savvy Pty Ltd (ABN 78 660 493 194) trades as Savvy and operates as an Authorised Credit Representative 541339 of Australian Credit Licence 414426 (AFAS Group Pty Ltd, ABN 12 134 138 686). We are one of Australia’s leading financial comparison sites and have been helping Australians make savvy decisions when it comes to their money for over a decade.
We’re partnered with lenders, insurers and other financial institutions who compensate us for business initiated through our website. We earn a commission each time a customer chooses or buys a product advertised on our site, which you can find out more about here, as well as in our credit guide for asset finance. It’s also crucial to read the terms and conditions, Product Disclosure Statement (PDS) or credit guide of our partners before signing up for your chosen product. However, the compensation we receive doesn’t impact the content written and published on our website, as our writing team exercises full editorial independence.
For more information about us and how we conduct our business, you can read our privacy policy and terms of use.
