Keeping your credit score safe during COVID-19

With many Kiwis uncertain about their financial futures right now, it’s good news that New Zealand’s major banks are offering eligible customers a six-month mortgage repayment holiday.

This is where you make no repayments on the principal portion of your mortgage, and the interest built up over this time is simply added to your loan balance. 

In normal times, taking a holiday from paying back your home loan could hurt your credit score. Seeing your credit score dip can be stressful and can potentially make it harder to obtain credit (or ‘borrow money’) down the line. 

Thankfully, the banks and the Government have agreed that mortgage holidays taken because of COVID-19 won’t impact your credit score. 

Placing your loan on interest-only (where you only pay the interest of the loan, and not the principal) or reducing your repayments down to the minimum has no impact on your credit.

If you’re facing difficult or uncertain times, we know that the idea of potentially losing your home is incredibly stressful - but it’s important to face things head-on, and take action now. 

These are just some of the options you could consider if it looks like you might struggle to keep up with repayments in the near future. If you start to miss payments without having arrangements in place, this is where you could find your credit score taking a hit. 

Being prepared and staying one step ahead is the best option.

Making changes to your lending structure is a big decision and it’s not one that we recommend you make on your own. Before locking in any changes with your bank, speak to your Orange Network adviser to talk over your options. We’re here to help. 

More information about mortgage repayment holidays

Despite what some comments on social media might like you to think, a mortgage repayment holiday doesn’t mean getting out of paying back the money entirely. It’s true that eligible borrowers don’t have to pay a penny during the holiday - but the money still needs to be repaid eventually, plus interest. 

For example, if you owed $500,000 today on a 30-year loan term and you took a six-month repayment holiday, you wouldn’t have to make any payments for the next six months. Once the six months is up, you’d have 29.5 years to repay the $500,000, which means your monthly payments would be a bit higher, to make up for the money that would have been paid during that six months you took off. You’ll also have to pay the interest that was accumulated over the holiday period.

Another option is to extend your loan term, if your bank will allow it - but the longer the loan term, the more interest you’ll pay. Mortgage repayment holidays are also called home loan repayment deferrals by some banks.

While a mortgage repayment holiday is a great option if you need it right now, if you don’t need it, there’s no reason to take one.