Today's announcement on Mortgage Holidays
With today’s announcement by the Finance Minister about 6-month mortgage holidays, we have been inundated by enquiries from our clients. Although the news is welcome it is extremely short on detail.
As announced by Grant Robertson more details will come about what’s being offered by the banks.
Unfortunately, here is where of the rub of the green that is not so straight forward. As the announcement is not an overarching announcement, it means each bank will have a different interpretation of what the announcement means to them and how they will incorporate the changes to align with their independent and existing policy.
To be clear no bank has announced their position on how to move forward yet.
As mentioned in my earlier communications, a mortgage holiday is not really a holiday, we were hoping to hear information along the lines of a mortgage freeze. However, as there is no detail announced yet, there is a chance the meaning of a mortgage holiday (this time) may be different from how they have been implemented up to now.
Some points of interest are:
- If the mortgage holiday is processed along the lines of what a mortgage holiday is meant up to now, then when you come off your holiday your mortgage is likely to be much higher than when you started: For example, if you currently have a mortgage of $300,000.00, use an average of a 4% interest rate, and you take a 6-month mortgage holiday, your total mortgage at the end of the mortgage holiday will be approximately $306,000.00.
- This in itself does not sound too bad – However if your Loan to Value ratio at the start of the mortgage holiday is 80%, The addition to your mortgage through the mortgage holiday period will then leave you with a Loan to Value ratio higher than 80%. The result of having a Loan to Value ratio higher than 80% is higher interest rates when you go to refix your loans at the time your loan rolls over. In extreme cases, if your current Loan to Value ratio is 95% then you could find that your mortgage is higher than what your house is worth.
- Please understand when I say - if a mortgage holiday is the only option for you, then take a mortgage holiday. I am acutely aware of the stresses and strains placed on businesses and individuals at this moment in time, and we will need to do what is needed to see ourselves through these uncertain times.
- Announcements by banks and what it means to their customers is expected very soon.
- There is no documentation or pathways been made available to action decisions yet.
- I will be letting you know what the banks release as soon as it comes to hand.
- We are ready to action requests as soon as the pathways are open to do so.
- There is likely to be more options than just mortgage holidays
As always, we are here to help, and I am happy for you to call me directly to discuss the above in more detail. We are aware some are hurting more than others and we are pressuring a response from the banks as are all financial advisers.
Please be patient, details will become available and we will be able to action requests once the options are known and understood.
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