What is a repayment holiday?

A repayment holiday is a pause on your home loan repayments. Repayment holidays can occur when you’re changing jobs, experiencing short-term injury, on maternity leave or other special circumstances.

It is often that a repayment holiday is only available when you’re ahead of scheduled repayments on your loan. Contact one of our mortgage experts to learn more.
What is a repayment holiday?

Last updated February 2021

A home loan repayment holiday is exactly what it sounds like: taking a break from making repayments on your home loan.

You will need to arrange this with your lender, who may allow for a period of up to 12 months. Some lenders may also allow for a reduced repayment instead of a full suspension, or a combination of both over the agreed period of time.

What are my available options?

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    Repayment holidays

    A repayment holiday can pause your principal and interest repayments for a period of time. Repayment holiday policies vary lender to lender, Eg. Some lenders may grant a repayment holiday for three months, with an option to review and extend to six months.

    After the repayment holiday the lender may either increase the amount of your repayments so that your loan term is not extended or extend your loan term by the length of the Repayment Holiday. It’s important to act early if you experience any difficulty. It is important to note that during this time your loan will still attract interest.

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    Payment Variation

    This could help reduce your monthly payments by extending the loan term. This may assist if you are experiencing a temporary reduction in income but still wish to make payments towards your mortgage.

    If the lender agrees to extend the term and reduce your payments for the balance of the loan it will take you longer to repay your loan which may result in additional interest being paid.

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Life is full of uncertainties. When your financial circumstances change, you might need to make adjustments to your debt repayment arrangements. Given that mortgage repayments are often the largest regular outgoings in many households, it makes sense to tackle these as a priority.

Some lenders will require you to have made extra repayments on your loan to be eligible for a repayment holiday; while others may grant it without that additional buffer.

In general, your lender will try to work with you and help you through rough times - since it's also in their best interest for you to get back on your feet, rather than default on your home loan.

Why you might need a repayment holiday

Sometimes you will be able to foresee an upcoming change in your financial situation, for example when taking parental / maternity leave, a career break, change in employment and so on. Whatever the circumstance, if your ability to service your mortgage is expected to change, it's worth speaking to your lender or mortgage broker to see if a repayment holiday might work for you.

Of course there are also unforeseeable circumstances that could impact you financially, such as redundancies, injuries, critical illness or death in the family. While these are stressful times, it's important to try and get your finances in order as early on as possible.

Downsides of a repayment holiday

During the repayment holiday, interest continues to accrue on your home loan. So in the long run you could end up paying more interest on your loan.

Bear in mind that while this can be a handy feature in times of need, it is not going to be a long term solution for serious financial woes.

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