Couple's mortgage break for 'stress relief'

Brady Smith and Frances Ward with horse Jamie. Photo / Herald on Sunday

When Brady Smith and Frances Ward go on holiday to Europe in June they will also take a break from paying the mortgage.

Smith, 23, works as a builder in South Auckland. Ward is 25 and works in freight tracking. The couple had heard of friends taking a mortgage holiday and asked their broker.

"We want to have the stress relief, not having to worry about the mortgage while we're away," said Smith.

He said they were taking the option by choice - but acknowledged they hadn't asked the full cost of the break from payments.

"We're in a situation where we could pay it if we had to, but we'd rather have the extra money for the holiday."

They bought their three-bedroom home in Maramarua, North Waikato, last November. It's the third home they've owned.

They owe $293,784 over a 25-year term which ends in 2031. The bulk - $210,349 - is on a floating interest rate of 6.95 per cent; $74,389 is on a fixed 9.25 per cent rate; and another $9046 is also on a floating rate.

During their 12-week mortgage holiday, they will stop both interest and principal repayments.

Even if they were repaying only interest at 6.9 per cent, that three months of interest adds up to $5567. Assuming the same interest rate, they will pay an extra $5315 interest on that interest over the remaining 22 years of their term - an extra $19 a fortnight.

Smith was surprised by the $5315 figure after an expert made the calculation for the Herald on Sunday.

"Five thousand dollars is quite a lot. We'll probably still go through with it because the situation suits us, but it does sound like a lot of money. I was probably expecting to add another two-and-a-half months on at the end, but obviously there's got to be some sort of extras we had to pay."

MetaMortgages broker Mark Jurgeleit said the best way to think of mortgage holidays was as an extra loan.

"Holiday sounds like such a nice, cosy term," he said.

"But don't be confused by the terminology: you are borrowing additional funds to meet your interest payments."

Jurgeleit advised cash-strapped borrowers to consider interest-only deals or breaking fixed rates, before taking mortgage holidays.