Taking a break from your loan repayments

We all need to take a break now and then. Taking a repayment holiday on your mortgage is like taking annual leave - it gives you some time off and relieves the stress of everyday life.

How does it work?

In most cases you’ll apply for a repayment holiday with your lender. An agreement will then be put in place that allows home loan payments to be put on hold for a set period of time.

Whilst repayment holidays have advantages and are useful for certain situations, there are also some other factors to consider. Before deciding if a repayment holiday is right for you, it's important to know the ins and outs to make sure your choice is a sensible one.

What are the advantages?

Your mortgage is usually your biggest monthly expense. If you’re having financial challenges and are concerned about meeting your home loan repayments, then a repayment holiday could help you get your finances back under control.

Life is unpredictable. If you find yourself in a situation where you’re facing unexpected expenses such as a divorce, the birth of a child, a death in the family or a change in employment, you might consider a repayment holiday.

If you haven’t got mortgage insurance and you’re struck down by unexpected injuries or illnesses that prevent you from working, a repayment holiday could be the right option for you.

You can usually apply for a repayment holiday for anywhere between three and 12 months, however each lender will vary and you will be assessed based on your individual mortgage and financial situation.

The disadvantages

The main disadvantage of repayment holidays is that interest is still incurred on the loan over the hold period, meaning that it will cost you more throughout the life of your loan.

Some lenders charge fees on repayment holidays, which again adds to the overall amount of your loan.

If the added cost outweighs the benefit of a repayment holiday, there are some alternatives you can consider.

Rather than putting your repayments on hold, you might like to consider reducing how much you pay each month. You could also speak to your lender about the possibility of paying interest only for a period of time. These options allow you to still pay off your loan and also frees up some money for the other areas of your life.

At the end of the day, it all depends on your circumstances and your lender. If you’re worried that you might need to look at these options down the track, speak to a mortgage broker and set out a plan that takes into account your personal situation.