Mortgage holidays come with big catch

A mortgage holiday can be a very expensive option for borrowers in times of hardship. While it may be difficult to make repayments, the cost of taking a repayment holiday is high in the long run.

On a $300,000 mortgage, a 12 month mortgage holiday can boost the amount outstanding by $18,000. This not only increases the term of the loan but also adversely affects the loan to valuation ratio.

Other temporary assistance available to borrowers include extending the period of the loan contract, reducing the credit limit, short term reduction in interest rates, temporary overdraft or interest only repayments.

Source: The Australian