With costs of living escalating and redundancies becoming commonplace, AMP Advisers are increasingly being asked about mortgage repayment holidays.

The simple truth is, there’s never a good time to take a repayment holiday. While it may ease cash flow problems in the short-term, it may cost you money in the long-term.

During a mortgage repayment holiday you won’t be making payments but the interest on the loan will continue to accrue. So effectively, it’s going to take longer to pay off your mortgage and you’ll pay more in interest overall – unless you increase your repayments after the holiday.

You should only consider taking a mortgage repayment holiday when you have no other option and can’t meet your monthly payments. This could be for a variety of reasons – redundancy, maternity leave or an unexpected emergency.

If you are struggling financially, the first thing to do is speak to your AMP Adviser to see what other options might be available to you.

One alternative is to see if you can extend the term of your mortgage, allowing you to lower your monthly repayments, although it will take you longer to pay off your mortgage and you’ll pay more in interest overall.

Converting to an interest-only mortgage will also decrease your monthly payments, so this could be an option. But at some stage you’d still need to pay off the principal as well as the interest so this too is only a temporary measure.

The first step you should take is to work out a household budget (www.sorted.org.nz) to try and identify ways to save cash. If you can somehow manage to save money from other areas of expenditure, you might be able to stay on top of your mortgage repayments.

If at all possible, you should continue to pay off your mortgage each month. A mortgage repayment holiday should only ever be used as a last resort.

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