Professionals Real Estate 
Should you take a mortgage holiday?
Many lenders are offering their customers the opportunity to pause their mortgage payments to help them deal with any financial fallout from the coronavirus – but is this a good idea?
On first glance a “mortgage holiday” might sound like a welcome relief, but it doesn’t work as simply as freezing a mortgage and coming back to it later.
Pausing a mortgage can end up being quite costly because the interest is still accruing on the principal amount of the loan. This means that you will either need to increase your repayments once your deferral period is up, or make more frequent payments.
This could then add to your financial burden when the deferral period is up, making it more difficult to get financially ahead.
Another option that some lenders are offering is to extend the length of their loan (for example, from 25 years to 30 years), however this would still mean that you end up spending more on your loan in the long run.
In some cases a lender may use any funds linked to a redraw account to help make their payments, so if you think you’ll want to access this money this is something you’ll need to consider before pausing repayments.
Are there other options?
If you’re looking to save money on your home loan then you may have a few options available to you to help reduce your financial burden.
They include:
- Negotiate a lower rate – Your current lender may be willing to drop your rate. All you need to do is call up and ask what they can do.
- Refinance– Interest rates are ridiculously low right now so if your current lender won’t budge, shop around.
- Use your redraw facility – Those that are ahead on mortgage payments might be able to access existing funds in their redraw account (note that fees may apply).
- Switch to minimum payments – This may be an option for those paying more than they need to each month.
- Pay a reduced amount – This could be an alternative to completely stopping repayments and will help reduce the financial costs down the track.
- Seek good advice – To ensure you make the best decisions that will work for you both today and in the future it’s best to talk to a professional financial advisor who can make the best recommendations for your individual situation.
