A mortgage holiday is a period where your lender allows you to temporarily stop making regular mortgage repayments. During this time, interest continues to accrue on the outstanding balance — and is usually capitalised (added to the loan). A mortgage holiday is not free money; it’s a deferral that increases your total debt and extends the effective loan term. Understanding when it’s worth taking one — and when alternatives are better — is essential.
A mortgage holiday in NZ pauses repayments for 3–12 months, but interest continues to accrue and is capitalised (added to your loan balance). On a $500,000 mortgage at 5.8%, a 3-month holiday adds approximately $7,250 to your loan. Mortgage holidays are at the bank's discretion — not a legal right — and require approval.
How a Mortgage Holiday Works in NZ
During a mortgage holiday:
- Your regular principal and interest repayments are paused
- Interest continues to accrue on the outstanding loan balance
- Accrued interest is capitalised — added to your loan balance rather than paid
- When repayments resume, your balance is higher than it was at the start of the break
Example:
- Loan balance: $500,000
- Interest rate: 5.8% (annual)
- Monthly interest: $500,000 × 5.8% / 12 = $2,417
- 3-month mortgage holiday: $2,417 × 3 = ~$7,250 capitalised
- Loan balance after break: $507,250
Your remaining loan term then covers $507,250 instead of $500,000. If the term isn’t extended, repayments rise slightly. If the term is extended, repayments stay similar but you pay interest for longer.
Who Can Take a Mortgage Holiday?
Mortgage holidays are discretionary — your bank is not legally obliged to grant one. Banks are generally willing to consider a repayment break when:
- You’ve been a reliable repayer with a good payment history
- You have a legitimate reason (parental leave, planned study, career break, short-term income reduction)
- The break duration is limited (typically 3–12 months maximum)
- You’re not already in financial hardship or arrears
Some fixed-rate loan structures have restrictions on making changes mid-term — check whether your current fixed period allows a break, or whether you’d need to wait until your term expires.
Common Reasons for Taking a Mortgage Holiday
Parental leave If one partner is on parental leave and household income has dropped materially, a 3–6 month repayment break can bridge the reduced income period. This is one of the most common and well-regarded reasons.
Career break or retraining Taking time off to study or retrain with short-term income reduction. Banks typically require you to demonstrate when income will return.
Travel or sabbatical A planned, finite period away — particularly common among teachers or academics on extended leave.
Unexpected short-term income reduction Not hardship per se, but a known short-term reduction — e.g., hours reduced during a business quiet period, a short contract gap.
For genuine financial hardship, see Mortgage Hardship NZ — which offers more formal protections.
The True Cost of a Mortgage Holiday
The interest cost of a break depends on the loan balance and rate. This table shows approximate capitalised interest for different scenarios:
| Loan balance | Rate | 3-month break cost | 6-month break cost |
|---|---|---|---|
| $400,000 | 5.8% | ~$5,800 | ~$11,730 |
| $500,000 | 5.8% | ~$7,250 | ~$14,700 |
| $600,000 | 5.8% | ~$8,700 | ~$17,600 |
| $700,000 | 5.8% | ~$10,150 | ~$20,600 |
These amounts are added to your loan balance. They compound — meaning you then pay interest on the interest. Over a 25-year remaining term, each $10,000 added to the loan costs approximately $9,000–$12,000 in additional total interest.
Be clear-eyed: a mortgage holiday costs real money. It’s appropriate when the alternative is worse — such as going into arrears, drawing down savings, or incurring high-rate debt — but it’s not cost-free.
Alternatives to a Full Mortgage Holiday
Before taking a full repayment break, consider these options which may be cheaper or more flexible:
Reduce repayments to interest-only Switching to interest-only means you pay the accruing interest but not principal. Your balance doesn’t grow, and your repayments drop significantly. This is often cheaper than a full holiday and doesn’t add to the loan balance.
Use a revolving credit or offset account If you have an offset account or revolving credit facility, you can park savings against the loan to reduce interest effectively — while retaining access to the funds. See Offset Account Mortgage NZ.
Reduce repayments temporarily (without full break) Some banks allow you to drop repayments below the standard amount without a formal holiday — particularly if you’re ahead on repayments. This avoids capitalising interest.
Redraw facility If you’ve made extra repayments, you may have a redraw balance available. Drawing on this covers expenses without touching your mortgage structure.
How to Apply for a Mortgage Holiday
Contact your bank directly. Most major NZ banks (ANZ, ASB, BNZ, Westpac, Kiwibank) have a process for repayment breaks, though they don’t widely advertise it.
You’ll typically need to:
- Explain the reason for the break and its expected duration
- Confirm when regular repayments will resume
- Agree to the capitalisation of accrued interest during the break
Ask your bank to provide written confirmation of:
- The break start and end dates
- How interest will be handled
- What your revised repayment amount or term will be when repayments resume
What to Watch Out For
Fixed-rate break fees: Changing your loan structure during a fixed-rate period may trigger a break fee. Check whether your fixed term allows this.
Credit file impact: A properly arranged repayment break agreed with your bank should not negatively affect your credit file. Contrast this with simply not paying (which is missed payments and will be recorded).
Extension of loan term: If your bank extends the term to accommodate capitalised interest, your mortgage-free date moves out. Understand exactly what resuming repayments looks like.
Frequently Asked Questions
Is a mortgage holiday free in NZ?
No. During a mortgage holiday, interest accrues on your outstanding balance and is typically capitalised — added to your loan. A 3-month holiday on a $600,000 mortgage at 5.8% adds approximately $8,700 to your loan balance. You then pay interest on that capitalised amount for the rest of the loan term, increasing total interest paid.
How much does a 3-month mortgage holiday cost in NZ?
On a $500,000 mortgage at 5.8%, a 3-month holiday capitalises approximately $7,250. On a $700,000 mortgage, approximately $10,150. These amounts compound over the remaining loan term — the real long-run cost is higher still as you pay interest on the capitalised interest.
Is a NZ bank required to grant a mortgage holiday?
No. A mortgage holiday is discretionary — unlike a CCCFA hardship application, which banks must genuinely consider. Banks are generally willing to grant repayment breaks for legitimate, time-limited reasons (parental leave, career break), but they can decline. For genuine financial hardship, a formal CCCFA hardship application offers stronger legal protection.
Can I take a mortgage holiday on parental leave in NZ?
Yes — parental leave is one of the most commonly approved reasons for a mortgage holiday. Most major NZ banks will consider a 3–6 month repayment break during parental leave. A history of reliable repayments and the expectation of returning income support the application.
What is the best alternative to a mortgage holiday in NZ?
Switching to interest-only repayments pays the accruing interest but not principal — your balance doesn’t grow, unlike with a full holiday. Using a redraw facility (if you’ve made extra repayments) is another option. Interest-only is often preferable to a full holiday as it prevents the loan balance from increasing.