If you can’t afford your mortgage repayments, the worst thing you can do is nothing. Every week of inaction makes the situation harder to resolve — missed payments compound, arrears grow, and the bank’s options narrow. But with early action, most situations have solutions.
Contact your bank immediately — before you miss a payment if possible. Under the CCCFA, banks must genuinely consider a hardship application. Options include reduced repayments, an interest-only switch, a repayment pause, or a loan term extension. The worst outcome is doing nothing: that path leads to formal default and potentially mortgagee sale.
Step 1: Quantify the Problem
Before contacting anyone, work out exactly what the problem is and how large it is. Open a spreadsheet or a piece of paper and list:
Monthly income (after tax):
- Your salary/wages (and partner’s, if applicable)
- Any benefit or government payment
- Any rental income
Monthly committed expenses:
- Mortgage repayment
- Rates, insurance
- Power, internet, phone
- Food and groceries
- Transport (car payment, fuel, registration)
- Any other loan or credit repayments
The gap: Monthly income minus all committed expenses = your position. If this is negative, by how much? That number tells you what solution you need.
A small gap ($200–$500/month) is very different from a large gap ($1,500+/month). Small gaps often have relatively simple solutions. Large gaps require more significant intervention.
Step 2: Contact Your Bank Immediately
Call your bank’s financial hardship team — not standard customer service — and explain your situation. Do this before you miss a payment if at all possible. Banks prefer early engagement and have more flexibility before arrears accumulate.
Under the Credit Contracts and Consumer Finance Act (CCCFA), your bank must genuinely consider a hardship application if you’ve experienced a genuine change in circumstances. This is a legal obligation, not a discretionary gesture.
Put your request in writing — email is fine. Include:
- What changed and when (job loss, illness, income reduction, major unexpected expense)
- Your current income and expenses
- What modification you are requesting
- Your plan for returning to normal repayments
See the mortgage hardship guide for the full process.
What the Bank Might Offer
Interest-only repayments (preferred first option) Switching from principal-and-interest to interest-only reduces your monthly payment significantly. On a $600,000 mortgage at 5.8%, the saving is approximately $900–$1,100 per month. Your loan balance doesn’t increase (unlike a full pause), but you’re not paying down principal.
This is usually the first modification to request — it’s less costly long-term than a full repayment pause.
Repayment pause (mortgage holiday) Repayments are paused for an agreed period (typically 3–6 months). Interest accrues and is added to the loan balance. On a $600,000 mortgage at 5.8%, a 3-month pause adds approximately $8,700 to your balance.
Use this only if cashflow truly cannot support even interest-only repayments — the compounding effect is real.
Loan term extension Extending your mortgage from, say, 25 remaining years to 30 years permanently reduces your required repayment. The trade-off is more total interest paid over the extended life of the loan.
Reduced repayment for a period Some banks will agree to a specific lower repayment amount for a defined period — bridging a short-term income interruption — without switching to interest-only or pausing.
Other Levers to Consider
Rent a room Under IRD rules, you can receive up to approximately $230 per week from a resident boarder in your own home without this income being taxable. This could provide $9,000–$10,000 per year to help bridge a repayment gap.
Use a redraw facility If you’ve made extra repayments, you may have redraw availability. Using the redraw to cover current repayments is not a long-term solution, but it can bridge a short gap while income is restored.
Reduce discretionary spending aggressively A genuine mortgage stress situation requires a genuine spending audit. Subscriptions, dining out, non-essential purchases, and recreational spending should all be examined. The goal is to close the gap, even partially.
Sell non-essential assets A second vehicle, recreational equipment, investment assets outside KiwiSaver — anything that can be converted to cash to reduce debt or restore cashflow is worth considering.
When Selling the Property Is the Right Answer
Selling is not failure — it is sometimes the most rational financial decision available. Selling under your own control is dramatically better than a mortgagee sale:
- You negotiate the sale price and timing
- You typically achieve a higher sale price than a bank-controlled mortgagee sale
- You preserve more of your credit file
- You retain agency over the process
If the gap between your income and your mortgage is permanent — not a short-term disruption — then selling and renting is a realistic financial path that preserves your credit, your savings, and your ability to buy again in the future.
The Worst Option: Doing Nothing
Borrowers who stop making payments without contacting their bank face an accelerating problem:
- First missed payment → bank contact (2–4 weeks)
- Further missed payments → formal demand letter
- 20-day grace period after formal demand
- Bank instructs solicitors → mortgagee sale process begins
- Property listed for sale under bank control
The entire process from first missed payment to mortgagee sale can take 3–6 months, but the credit and financial consequences last much longer. Acting early is almost always recoverable. Acting late becomes much more difficult.
Free Help Available in NZ
- MoneyTalks — 0800 345 123: Free budgeting service, weekdays 8am–8pm and Saturdays 10am–2pm
- FinCap: Free financial mentors across NZ — fincap.org.nz
- Citizens Advice Bureau (CAB): Free financial and legal guidance — cab.org.nz
- Financial Services Complaints Limited (FSCL): If your bank refuses a hardship application — fscl.org.nz
Frequently Asked Questions
What are my options if I can’t afford my mortgage in NZ?
Contact your bank immediately and request a hardship assessment. Options typically include interest-only repayments, a repayment pause (mortgage holiday), loan term extension, or reduced repayments for a defined period. Under the CCCFA, the bank must genuinely consider your application.
What is the difference between interest-only and a mortgage holiday in NZ?
On interest-only repayments, you pay the accruing interest each month — your balance stays the same. On a mortgage holiday, you make no payments at all — interest accrues and is added to the balance (capitalised). Interest-only is significantly less costly long-term and is usually preferable.
Can the bank force me to sell my house in NZ if I’m struggling?
Not immediately, and not if you are engaged with them. A bank can only initiate mortgagee sale after formal default has occurred and the legal demand and notice processes are complete. Proactive engagement with the hardship team prevents the formal default process from starting.
How does selling my house affect my credit file compared to mortgagee sale?
A voluntary sale does not create adverse credit file information by itself. A mortgagee sale typically involves registered defaults remaining on your credit file for 5 years. The credit impact of a voluntary sale is far less severe.
Where can I get free mortgage advice in NZ?
MoneyTalks (0800 345 123) provides free budgeting advice and can help you prepare for bank conversations. FinCap operates free financial mentors nationwide. Citizens Advice Bureau provides free legal and financial guidance.