In response to Covid-19 and the financial stress that many Kiwis are suddenly facing, the Reserve Bank of New Zealand is allowing banks to offer 6-month ‘mortgage holidays’. Although we prefer the term Mortgage Repayment Deferral because it’s not really a holiday.
One of the concerns around this option has been whether customers might end up with a red mark on their credit scores, making it tricky to borrow in the future.
The good news is that banks have addressed this and stated credit scores won’t be affected for those taking on a repayment deferral due to Covid-19.
Westpac’s website says “customers who are not in arrears at the time they are granted this loan repayment deferral will be marked with a “Payment not Required” flag, which will be reported to credit agencies, but will not impact on a customer’s ability to get new credit in the future.
The general consensus among the banks is that only borrowers who are already in arrears at the time that the deferral is granted may have a negative impact on their credit rating.
It’s important to remember that during a repayment deferral period, interest is still charged and added to the loan. This means the loan balance increases and repayments will likely be higher, unless the loan term is extended.
If you are considering a mortgage repayment holiday as an option, first consider whether you can afford to pay interest-only on your mortgage instead. Current mortgage interest rates are at an all-time low, so moving onto interest-only could provide you with the additional cash you need without having to defer your mortgage payments and add to future repayments.
Here’s how the process works with each of the banks. If you’re unsure whether a repayment deferral is the right option for you, we’d be happy to help. Give us a call and we can chat through your situation.