Counting the cost of mortgage holidays

A 12-month mortgage holiday - or a brand-spanking new kitchen and bathroom? As Prime Minister John Key persuades the nation's banks to offer struggling homeowners one-year breaks on paying off their mortgages, figures reveal the enormous cost in taking the "holiday from hell".

According to bank calculations, a family paying 8 per cent interest on a $250,000 mortgage will pay an extra $28,000 in interest - the long-term cost of some short-term relief. That is because the interest keeps compounding, and is added to the end of the loan.

To put that in context, $28,000 would pay for a new kitchen and bathroom in most houses - with a little left over for a real holiday at the beach.

Indeed, Patrick Goodin of Good Kitchens Ltd said it would not only buy you a nice new kitchen - it would even pay for top-notch finishing, such as stone bench-tops.

Amid accusations that banks are profiting from homeowners' vulnerability, Finance Minister Bill English said yesterday that banks needed to "play their part" by accepting lower profits.

To read the full NZ Herald article click here

Posted: 12 Apr 2009

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