What to consider before hitting pause on your mortgage
In today's challenging financial climate, the term 'mortgage holiday' may seem like a lifeline for borrowers grappling with increasing interest rates and higher monthly payments. However, before you rush to hit pause on your home loan, it's crucial to understand that the decision to pause your mortgage repayments should not be taken lightly.
A mortgage holiday is a relief measure designed to allow homeowners to temporarily suspend their mortgage payments for a predetermined period. This option is mainly intended for individuals facing financial hardship due to unforeseen circumstances such as illnesses, accidents, or job loss. It offers a respite, allowing borrowers to regain their financial footing without the pressure of meeting their mortgage obligations.
However, it's essential to keep in mind that a mortgage holiday is a short-term solution and should only be considered when absolutely necessary. Let's take a look at why you need to be cautious about using this option….
1. Interest Continues to Accrue:When you put your mortgage payments on hold, the interest on your loan doesn't take a break. It continues to accrue during the holiday period, adding to the overall cost of your mortgage.
Consequently, when you resume making payments, the amount could be higher than before as you work to catch up on the missed payments. This can create an additional financial burden down the line.
2. Increased Repayments. When you take a repayment holiday the repayments are increased at the end of the holiday period to catch up on the repayments missed. This needs to be taken into consideration to ensure these higher repayments can be met after the holiday term is over.
Given these potential downsides, it's important to consider alternative options before opting for a mortgage holiday. Here are some alternatives to explore with the guidance of a mortgage advisor:
1. Extend the Loan Term: You can discuss extending the loan term on your mortgage with your lender. This will reduce your monthly payments temporarily, providing some breathing room. Later, when your financial situation improves, you can work on reducing the loan term again.
2. Interest-Only Payments: Making interest-only payments for a period can help you keep up with the interest, which can ultimately save you more money than taking a full repayment holiday.
3. Debt Consolidation: Consult with a mortgage advisor about consolidating high-interest debts and loans into one manageable repayment. This approach often reduces your overall monthly obligations and allows you to pay off your debt more efficiently. Alternatively, refinancing with a different lender may offer more favourable terms that align better with your current financial circumstances.
While a mortgage holiday can provide much-needed relief during times of financial hardship, it's essential to approach it with caution. We encourage you to get in touch with our Dunedin mortgage advisors to explore alternative solutions that may be more financially advantageous in the long run.
Remember that a mortgage holiday is a temporary fix, and the decision should be made after careful consideration of your specific situation and financial goals. Your home is a significant investment, and protecting its long-term financial health should remain a top priority. Get in touch with our team today to discuss your home loan needs.