Pausing Mortgage and Loan Repayments – Issues to Consider

The following is for example only.  Your bank/financial institution may be different, please ensure you read the terms and conditions of any offer being made to you, and please consult a lawyer before signing anything.

  1. Different banks apply different style of repayments, duration of pause, and type of loan that Pause can be applied to. Generally, only Home Loans can benefit from a Pause; Credit lines and other facilities cannot be paused.
  2. During Pause the applicable interest on the loan amount that is not being paid becomes part of your loan amount. That is, if your loan is $100,000 and you are scheduled to pay $1,100 per month that is a combined amount of $900 interest and $200 of capital repayment, in the course of 6 months the $900 interest gets added to your $100,000 loan each month.  That means after one month, your loan has increased to $100,900, plus the interest that is applied to it under your home loan contract.  After 2 months, your loan is increased to $101,800, plus the interest applied to it; and so on.
  3. After the Pause period is over, the bank will reschedule your payments for the new total loan at the interest rate applicable at the time, for the same period of loan in your contract and potentially at a higher interest rate if the market rate goes up then and your loan is a variable interest. This will certainly translate into larger monthly payments when the pause period is finished.
  4. A better option for those under financial pressure for payment of mortgage is to ask your bank to convert your loan into interest only, which will reduce your periodic payment a and will not result in increase to your initial loan amount.
  5. Ask a lawyer to read your agreement for a pause before signing anything that binds you to this seemingly good deal. It may be a lot more harmful than it looks.