In another important announcement for the economy, the Government has reached an agreement with the major retail banks for them to provide mortgage holidays to home-owners. That will reduce some of the stress felt by home-owners in wake of the COVID-19 lockdown, the length of which remains uncertain.
Although all the details of the agreement are yet to be released, the Government confirmed that all home-owners who have had their income disrupted by COVID-19 will be entitled to a 6-month mortgage payment holiday. That includes both principal and interest aspects of the mortgage repayment. However, going on a mortgage holiday does not mean that you avoid payments that would have been due during the 6-month period. In an interview on 25 March 2020, Finance Minister Grant Robertson clarified:
“It just defers the payments but they will end up being added on to the mortgage at the end. It is principal and interest so that also will mean a significant bill…”
If you are a home-owner, you should consider whether a mortgage holiday is necessary because it will lead to a greater liability in the future.
Financial support for the repayment holiday is being provided by the Reserve Bank. It has reduced the banks’ core funding ratios to 50 per cent (from 75 per cent) and amended appropriate capital rules. The Reserve Bank has also assured businesses that they will monitor the bank’s behaviour over the coming months for oversight purposes