When to Pause Home Loan Repayments: What You Need to Know

Life doesn’t always go as planned.

Whether it’s job loss, parental leave, illness, or another key lifestyle event, unexpected challenges can make it difficult to keep up with home loan repayments.

If you’re facing financial pressure, you’re not alone and the good news is that lenders across Australia offer flexible home loan repayment options to help you manage.

One of the most common short-term relief measures is the ability to pause home loan repayments (sometimes called a repayment holiday).

However, before you apply to pause your home loan repayments, it’s essential to understand how this decision affects your loan balance, interest, and financial future.

In this guide, the experts at Pherrus Financial Services break down what a repayment pause really means, how different banks handle them, and what to consider before taking this step.

What Does It Mean to Pause Home Loan Repayments?

When you pause your home loan repayments, your lender temporarily suspends your regular scheduled repayments for an agreed period, typically anywhere from three to six months, depending on your financial situation and lender’s suitability criteria.

This option can offer short-term breathing room during times of financial hardship, like redundancy, medical emergencies, or reduced household income.

However, while your repayments stop temporarily, your interest doesn’t.

This ongoing interest capitalisation which is the process of adding unpaid interest to your loan balance, means your home loan balance will grow during the pause.

Once repayments resume, your loan term may be extended, or your new repayment amount may increase to cover the accumulated interest and outstanding balance.

In short: A repayment holiday provides relief now but can cost more later.

How Paused Home Loan Repayments Affect You

Even during a pause, interest repayments continue to build. This can lead to:

• A higher loan balance: Unpaid interest is added to your mortgage principal.
• Larger repayments later: Once the pause ends, your repayments may increase to catch up.
• Longer loan term: In some cases, lenders may extend your loan term to make repayments more manageable.
• More total interest: Over time, you’ll likely pay more interest compared to making regular repayments.

It’s important to speak with your lender or a financial counsellor before deciding to pause repayments.

In some circumstances, switching to interest-only repayments or reducing your repayment amount may be more cost-effective than a full repayment holiday.

Home Loan Repayment Options During Financial Hardship

If you’re struggling with financial hardship, there are multiple financial assistance options available. Each lender’s policy may differ, but here are the most common:

1. Reduced Repayments

You may be able to lower your minimum repayments by up to 50% for three to twelve months, depending on your circumstances and lender’s suitability criteria.

2. Interest-Only Repayments

Switching from principal and interest repayments to interest-only payments can temporarily free up cash flow. Keep in mind, your loan balance won’t reduce during this time, and you’ll pay more interest over the long term.

3. Repayment Holiday (Pause)

A complete pause on repayments, typically up to six months, where your loan remains active, and interest continues to accrue.

4. Redraw or Offset Account Access

If your mortgage has a redraw facility or offset account, you may be able to tap into available funds to cover missed payments or manage short-term pressure without applying for hardship.

5. Extension of Loan Term

Your lender may extend your loan term to reduce each repayment amount. This provides long-term relief but increases total interest repayments over the life of the loan.

Understanding Financial Hardship and Your Rights

Financial hardship can arise suddenly. Job loss, illness, separation, or unexpected bills can all make regular repayments tough.

If you find yourself behind on loan repayments, contact your lender’s financial hardship team right away.

Under Australian law, lenders must consider requests for financial hardship assistance.

Common forms of help include reduced repayments, temporary repayment holidays, and interest-only arrangements.

Importantly, a hardship arrangement will appear on your credit report, but it won’t negatively affect your score if you comply with the new loan terms.

Usually, it clears after 12 months.

If you need free and confidential financial counselling, contact the National Debt Helpline on 1800 007 007.

They provide access to qualified financial counsellors who can help you explore your options.

How Major Banks Support Repayment Pauses

Below is an overview of how some major banks in Australia support customers needing to pause home loan repayments:

St. George Bank

• Offers an initial 3-month repayment holiday, extendable to 6 months.
• Interest accrues during the pause and is added to your loan balance.
• Offers competitive fixed-rate options for up to three years.
• Dedicated online and phone banking support for convenience.

Commonwealth Bank

• Provides a six-month pause on home loan repayments.
• Offers reduced monthly direct debits as an alternative to pausing payments.
• Temporary fixed-rate home loans starting from competitive rates.
• 12-month term deposits up to 1.7% p.a. for additional income.

Macquarie Bank

• Allows up to six months of repayment pause on home loans.
• Interest continues to accrue, added to the outstanding balance.
• Full balance (principal + interest) must be repaid once the pause ends.

NAB (National Australia Bank)

• Customers can pause home loan repayments for up to six months, reviewed midway.
• Offers fixed-rate home loans up to five years and short-term income deposits.
• Supports redraws from advanced repayments for immediate cash flow.

Managing Your Loan During a Pause: Practical Tips

To better manage your home loan balance and limit the financial impact:

1. Continue making small or partial extra home loan repayments when possible.
2. Keep available funds in your offset account to reduce interest repayments.
3. Use your transaction account to track scheduled repayments and fees.
4. Reassess your budget and avoid unnecessary spending during the pause.
5. Review your new repayment amount once payments resume to stay on track.

How Pherrus Can Help You Navigate Repayment Pauses

At Pherrus Financial Services, we understand that navigating a home loan repayment pause can be complex.

Our experienced accountants and tax consultants can:

• Help you assess your financial situation and eligibility for a repayment pause.
• Advise whether interest-only repayments, a repayment holiday, or reduced repayments suit your circumstances best.
• Support you with budgeting, financial hardship applications, and long-term repayment planning.
• Review your loan term, interest rate, or refinancing options to reduce long-term costs.

Whether you’re an owner-occupier or investor, Pherrus can guide you through your home loan repayment options to find a sustainable and compliant solution.

If you’re under financial pressure or considering pausing your mortgage, don’t navigate it alone.

Contact Pherrus today for confidential, expert advice to help you regain control of your finances and make smart decisions about your home loan.

FAQs

Can I Pause My Home Loan Repayments if I’m Struggling Financially?

Yes. Most Australian lenders allow borrowers to pause home loan repayments (a repayment holiday) during financial hardship.

You must meet suitability criteria and discuss your options with your lender. Keep in mind, interest continues to accrue, which increases your loan balance.

A hardship variation can include a temporary pause or a reduction in repayment amounts for a short period due to unforeseen circumstances such as job loss or illness.

You can complain to the Australian Financial Complaints Authority (AFCA) if your lender does not provide adequate assistance during financial hardship. Independent advice for dealing with financial hardship can be obtained from the National Debt Helpline.

The National Debt Helpline offers free, confidential advice from financial counselors who can advocate for borrowers experiencing hardship.

What Happens to My Loan During a Repayment Holiday?

When you pause your home loan, interest repayments continue to accumulate on the outstanding balance.

This means your loan balance increases over time, potentially leading to higher future repayments or an extended loan term.

Repayment holidays allow borrowers to pause scheduled repayments for a specified period, often between 3 to 12 months, provided they have made additional repayments in the past and have a sufficient redraw balance.

Is Pausing Home Loan Repayments Bad for My Credit Score?

Not necessarily. A formal financial hardship arrangement is recorded on your credit report, but it won’t harm your credit score if you comply with the new repayment arrangements.

It typically clears from your file after about 12 months.

If you miss repayments without an agreed pause, it may negatively impact your credit score.

What are Some Alternatives to Pausing Home Loan Repayments?

Alternatives include reduced repayments, switching to interest-only repayments, redrawing funds from your available redraw, or using your offset account to cover minimum repayments.

Each option has different eligibility and financial implications.

You can apply to lower your minimum repayments by up to 50% for a term of 3 to 12 months during financial hardship.

Flexible payment arrangements allow you to make partial repayments for a limited time, usually starting with one or two months.