Beware the holiday that merely seizes your interest
You should really have an exceptional reason for taking a costly break from your mortgage, reports.
could be thousands, or tens of thousands, depending on the size and terms of your mortgage.
ASB says less than 0.5 per cent of its more than $45b home loans are on holiday.
Shaun Drylie, ASB general manager of product and strategy, says the number of customers seeking a holiday has remained relatively stable over time.
He says customers may apply for holidays for lifestyle reasons, like a holiday or to do renovations. The holiday must be approved by a specialist case manager.
Westpac has residential mortgages worth more than $43b, Kiwibank $12b.
Kiwibank doesn’t advertise mortgage holidays on its website but can look into it depending on a customer’s circumstances, the bank says.
BNZ, with more than $36b lent to Kiwi homeowners, approved 4055 holidays in 2010 and the prior year, 3727.
It now says it doesn’t actively monitor the number on holiday but it’s a ‘‘very small portion’’.
Head of retail banking operations Matthew Cullum says, whatever the reason, the bank encourages its customers to discuss their situation to ensure a holiday is the best option to provide the financial flexibility they’re looking for.
He says customers request holidays for myriad reasons including wanting to put some money aside for an unforeseen expense, taking some time off to start a family, or going on a real holiday.
ANZ says customers can choose to up their payments once the holiday is over or extend the loan term to cover the extra interest and payments put on hold.
You will pay more interest; that’s a given. Unless you boost your repayment once the holiday is over, your mortgage term is longer, which equals more interest.
Think of the short-term fix mortgage holiday this way; interest, plus interest, plus interest is less money for you in the long term.
ANZ suggests mortgage holders could temporarily reduce repayments to the minimum amount rather than go for the holiday. A good option, if you can still afford to make some payment.
Koh says you need to think forward to after the holiday.
If you still don’t think you will be able to pay you may need to sell. ‘‘If you’ve bitten off more than you can chew, maybe you should buy something cheaper or rent for a while until you have saved enough for a bigger deposit and smaller mortgage.’’
WE ALL NEED A HOLIDAY
For a wide-reaching financial disaster like Christchurch’s earthquakes, the banks offered holidays and special packages including low interest rates.
In total more than $600 million of Christchurch mortgage payments were halted post-quake, with Westpac’s holidays totalling almost half that amount.
ANZ’s Red Zone Package offered rates of 2.4 per cent for 12 months. Residential property valued about $100m is currently on ANZ’s red-zone rate, compared with $240m of deferred payments immediately after the February quake.
IT’S WHAT YOU DO ON HOLIDAY THAT COUNTS
Koh says she does advise clients to take holidays but only if something financially devastating has occurred.
You may be made redundant. You may be too sick to work.
In that event, it can give you breathing space, Koh says. But you need to use the time wisely.
She says you must look at your money management and budgeting as eventually you need to pay the mortgage again. Spending should be first in the spotlight.
Koh says there are three kinds of spending; committed spending like the mortgage payments, household spending on things like food and discretionary spending like eating out.
Unless you are willing, or need, to do ‘‘something major’’ you’re stuck with committed spending.
Discretionary spending gets cut first. Then minimise bills you can control, like food purchasing, as much as possible.
If it’s really dire, or like some of Koh’s clients you have huge credit card debt – some easily owe $40,000 – you need to address it.
Koh says a cashflow problem with not enough coming in and too much going out on high interest debt like credit cards may require drastic action. But take action. ‘‘Talk to your creditors. Tell them you have a problem. Get an arrangement to pay the debt off over a longer period of time.’’
She says creditors should be happy to have this chat with you. They’d rather have the money drip-fed than write off a bad debt. ‘‘Communicate and negotiate.’’ If your creditors won’t play ball you can apply through the Insolvency and Trustee Service for a summary instalment order. You’ll need to set out in detail your financial affairs but, if approved, your creditors have to accept the terms of the order.
Koh says budgeting services are another good port of call. ‘‘You have got to budget.’’
Federation of Family Budgeting Services president Margaret Elsworth says they don’t really recommend mortgage holidays because of the interest cost; it is difficult to recommend more debt.
She says holidays are not common and federation advisers will work closely with the borrower and lender to come up with another arrangement.
In some cases, Elsworth says, the service may refinance the loan with another lender at a lower interest rate, but it’s not a decision taken lightly as it comes with costs too, of course, such as break fees.