If your mortgage repayments have become harder to manage, a mortgage holiday or temporary switch to interest-only repayments may help reduce pressure for a short period. Both options can provide short-term breathing room, but they work differently and can affect your loan in different ways over time.
This guide compares mortgage holidays and interest-only repayments in New Zealand, including when each option may be considered, the possible costs, and what to think about before choosing a temporary repayment change.
Life happens – changing jobs, parental leave, health events and other events, such as COVID-19, which make it harder to meet regular mortgage repayments. During these times, either strategy offers temporary financial relief but ultimately have different impacts. If you have a major life event and not sure which option is better for you, contact us to work with you to help you find a tailored solution that will work for you.
In short, you pause repayments for a fixed period, usually 3 to 6 months. This is also known as a repayment deferral. If you need a mortgage holiday extension, your lender will usually reassess your situation, affordability, and whether extending the deferral is still appropriate.
You pay only the interest portion of your mortgage for a set period.
Some mainstream banks may allow up to 24 months of interest-only repayments for lifestyle reasons, provided you meet their eligibility criteria. This may include:
For more detail on how this repayment structure works, see our guide to how interest-only mortgages work.
If you are facing genuine short-term hardship, such as sudden income loss, a mortgage holiday may be worth discussing with your lender or adviser.
If you are not in hardship but need temporary repayment flexibility, switching to interest-only repayments may be more suitable.
If neither option clearly fits, it may be better to stay with your current repayment structure or review broader options, such as refinancing your mortgage, to improve long-term stability.
Jane lost her job and needed time to find new work. She applied for a 3-month mortgage holiday, which was approved. This gave her breathing room while she secured a new role, but her loan balance increased because interest continued to accrue during the repayment break.
Let’s say for example, that you qualify for a 6-month mortgage holiday. So for 6 months you don’t have to pay anything on the loan. Therefore, you get immediate relief of $2,387 per month. However, interest keeps adding to the amount that is still owed.
Interest over 6 months: Original loan amount / monthly interest rate x period of mortgage holiday period in months. The interest rate each month (4% divided by 12 months) = 0.33%
So, $500,000 x 0.33% x 6 months = $9,900 in interest over a 6 month period. This amount will then get added to the loan (as a minimum) and your repayments will be recalculated at the end of the mortgage holiday term.
Possible Savings: Relief of $2,387 per month for 6 months because you are not making payments. The interest however gets added to the loan amount, resulting in a higher overall loan amount, compared to when you originally started, plus additional costs to cover the interest of the loan. However, Jane enjoyed the temporary mortgage relief when she really needed it to find that new role.
James took time away from work for parental leave. Instead of applying for hardship, he switched to interest-only repayments for a set period. This gave him financial breathing room while still making mortgage repayments, because he had enough income to meet the interest-only payments.
Let’s assume you switch for a period of 2 years. During this time, you only need to make interest payments, and the principal balance remains unchanged.
Monthly Interest Payment: $500,000 x 4% / 12 months = $1,667 in interest payments
Potential Savings: You can reduce your monthly mortgage payment from $2,387 (principal and interest) to $1,667 (interest only). This results in a monthly savings of $720 per month for the 2-year period.
These calculations are simplified examples only. Actual costs and savings will vary depending on your loan balance, interest rate, remaining term, lender policy, and personal circumstances. It is important to speak with a mortgage adviser or financial adviser before choosing a repayment holiday or interest-only option.
Feature |
Mortgage holiday |
Interest only loan |
|---|---|---|
Repayments |
$0 | Pay interest-only |
Loan Balance |
Usually increases because interest accrues | Principal balance usually stays the same during the interest-only period |
Credit Impact |
Depends on lender arrangement and account conduct | Usually treated as normal repayments if approved and paid on time |
Eligibility |
Usually linked to hardship or temporary repayment difficulty | Requires lender approval and ability to meet interest-only repayments |
Duration |
Usually 3-6 months | Varies by lender, borrower type, and purpose |
Long Term Cost |
Often higher because interest may be added to the loan | May be lower than a repayment holiday, but principal is not reduced |
Future Repayment Impact |
Repayments or loan term may increase after the holiday | Repayments may increase when principal-and-interest payments resume |
Get help from our mortgage experts who help you through these tough times. We carefully look at your finances and long-term goals. Understanding the pros and cons of each choice is very important if you want to make a good financial decision.
These methods can help in the short term, but it is important to think about how they might affect the loan term as a whole.
A mortgage holiday and an interest-only period can both ease repayment pressure in the short term — but they work quite differently, and the distinction matters. A mortgage holiday pauses your repayments entirely for a set period, while an interest-only arrangement reduces your monthly payments by pausing principal repayment rather than stopping payments altogether.
Which one makes more sense depends on your situation — why you need relief, whether the pressure is temporary, what your lender is likely to approve, and how either option might affect your loan over time.
The most important thing before deciding is to weigh the short-term relief against the longer-term cost. A mortgage adviser can help you compare the options, work through the likely impact on your loan, and figure out whether a mortgage holiday, interest-only period, refinance, or another pathway is the more suitable option for your situation.
If your repayments are becoming difficult to manage, contact Platinum Mortgages before choosing a temporary repayment change. We can help you understand your options and work through a safer next step.
Angela is an accredited Financial Adviser, licensed under FSP742251 and has been in the Financial Industry since 2006. Our 5-star Google reviews reflect the excellent customer experience we promise — making your home loan journey positive, stress-free, and rewarding. At Platinum Mortgages, our clients are the reason we exist — so you can be confident every step is guided by genuine care and expertise.
