So You Took a Mortgage Holiday – Now What?
What You Did and Why
If you have a mortgage, and your income took a hit when we went into lockdown, it’s likely you’re one of the approximately 140,000 people who took a mortgage holiday or reduced their mortgage payments in some way – going interest-only, for example. You did this because you don’t (or didn’t) have the money coming in to keep repayments where they were. The bank agreed to the lower (or no) repayments, However they are now adding those missed payments to the total that you owe, and charging interest on the new total.
Taking a long-term view, suspending or reducing your repayments isn’t recommended - it’s going to cost you more over the life of the mortgage. But if you don’t have the money now, and it’s likely that you will in the future, then the cost is probably worth it to you. Like all holidays, this one will come to an end, probably around the end of September / start of October. Due to the second lock down, there may be the option to extend the mortgage holiday until March 2021. But at some point, you will need to start making repayments again. Most likely, you need to take action before that happens.
Your first step is to get clarity. What will your situation be when your mortgage payments re-start? If you suspect that your situation will be that you can’t afford the repayments, then you probably don’t want to know the details. That’s understandable – no one likes getting bad news. Think about it like this: if you get clarity about your financial position now, before the mortgage holiday ends, you’ll be getting bad news about what might happen in the future. You still have time to make changes that will lead to a better outcome. And ideas about what those changes might be will come to you much more easily when you have clarity.
To get clarity, you’ll need to know: On what date will your mortgage payments re-start? How much will they be? What is your current income? What other expenses do you have?
The second step is self-care, because if clarity came with an unwelcome dose of bad news, it probably also brought with it a whole range of difficult emotions. It’s all very well for other people to be calm and logical about your financial position but your financial position is not an abstract concept for you. Everyone’s money situation taps into their fears about survival, both literally and socially. Obviously, we’re going to have an emotional reaction if we think our survival is threatened. Get support. Cry. Vent. Exercise. Journal if there’s no-one to talk to. Process. Just don’t try to pretend that you’re not feeling what you’re feeling – supressed emotions have a way of coming out when they’re least helpful. Because when we’ve achieved clarity and processed the initial emotions, we are able to imagine and put in place solutions to the problem.
This isn’t so much a step, as a concept that’s woven through all the actions you can take. When you’re problem-solving an issue like how to get enough money to pay the mortgage, it can seem like there’s only one answer – magically get enough money to pay the mortgage.If it were that easy, it wouldn’t be a problem, am I right? It’s not that easy. We need to be creative. What I mean by that is: Being open to seriously considering other options – ways to earn money, places to live, how we live, the time taken to repay the mortgage. Being aware of our deepest needs, and open to new ways of meeting them. We can suspend meeting some needs for a short time, and then feelings of deprivation kick in and we act out, often over spending more money than we need to in order to meet our needs. Yes to reducing spending, no to living in deprivation. This probably isn’t the first time you, your family or friends have faced a difficult time. How did they come through? Take inspiration from stories of how others have first survived, and then thrived.
Find a Mortgage Broker If you don’t have a mortgage broker, get one that’s right for you. Ask for recommendations – friends, family, the local community Facebook page. If you don’t like the first one you talk to, that’s OK, there are others. Mortgage brokers have up-to-date knowledge of what’s happening with the banks right now. You need someone with experience of re-negotiating more than one mortgage, with more than one bank. Your cousin may well be the expert on what happened with their mortgage last year. That doesn’t make them the right person to advise you on what to do with your mortgage this year. A mortgage broker will be able to tell you if extending the time-frame on your mortgage is feasible in your situation (costs less in repayments now, but more in the long run. Assuming you never increase payments again over the life of the mortgage.) They also can talk to more than one lender, so you’re not necessarily stuck with a “no” from your bank.
Track your Spending
Whatever the bank, they are bound by the responsible lending code, which means they must make sure that you are able to make the repayments on your mortgage without suffering substantial hardship. So they’re going to need information about your income and expenditure. Banks no longer take your report on what you spend – hardly anyone knew what they spent on things like healthcare, anyway. Now banks tale the last few month’s transactions on your bank account and run it through a program which tells them how much you’re spending and where. That’s why changing your spending patterns now, before your mortgage holiday is over, will give your re-negotiation chances their best shot. There are a number of apps that will automatically categorise where you’re spending, and they’re OK for reports of what you did. It’s kind of like standing on the scales at the end of the month – yep, ate too much again. Or in this case, spent too much. If we want to change the spending before it happens, we need to get more mindful. I recommend manually tracking everything you buy, for at least a month. Yes, it’s a pain, but that’s the point. Without the pain, which the payment solutions industry has worked so hard to remove from our buying experience, we are disconnected from both how much and how often we are spending money. If you want to change your spending habits, you need to re-connect to your spending while you are doing it. Like Kathy, who was half-way through ordering Uber Eats, before it occurred to her that she’d have to track this spending. Not only did she not want to have to do that, she caught herself almost doing one of the things she’d decided to not do anymore. Before she did it. She cancelled the order and made herself some toast.
Grow Your Income
If you’re looking for a new job, my best wishes go with you. It’s a completely shit time. There are people who can help – keep looking until you find the right ones for you. While you look, you might need to consider the previously un-considerable: getting in a flatmate or boarder. The banks are no longer impressed by an intention to do this. If you think the extra income will get you across the line, get onto sorting it out now, so that you already have one in place when you’re talking to the bank. Other previously off-the-table options which may save you if done right are moving house and changing careers. Neither may be the option you would have chosen if it was entirely up to you at this point. They could still end up being something you’re happy you did. Investigate all options with an open mind. Another option could be taking on one or more side-gigs. Don’t count on all the money from your weekend job going to debt repayment though – most people find that the more they work, the more they spend. Food is the obvious example – they have no time or energy left to cook. There can also be an acting out response – after working endlessly, we all feel we deserve whatever our favourite treat is. Control of our spending is still key, even when we’re earning more. Take a long, hard look at any business opportunities that come your way, especially if they’re promising large returns for not much work. The bank will be looking for a history of reliable income from a small business, so while a start-up may grow and give you financial security in the future, that potential will not be taken into account when assessing your mortgage today. Given the long-term nature of mortgages, banks will be looking to be reassured about the outlook for your current line of work, and how well it can adapt to the increased social distancing that is likely to be around for a while yet.
What if Things Look Really Bleak?
It could be that right now, there is no way to resume paying the mortgage. There are still steps you can take: Applying for hardship assistance from the bank. Your mortgage broker can help you with the information that would be required, and any arrangement is predicated on full and open communication, and on both parties meeting the obligations agreed to. KiwiSaver hardship withdrawal. The condition on withdrawal to pay the mortgage is that the lender is seeking to enforce the mortgage, so talk to the bank first. Check that you and your employer are getting all the assistance you’re entitled to – Work and Income’s website has the details. Don’t go into debt to support your previous lifestyle. It will give the illusion that things are OK, but they’re not, and you could end up in a worse position than you are currently. Communicate with those who support you. This stressful time isn’t something that you have to go through alone.