# HL-Q066: Choosing a loan Our income has fallen and our mortgage is getting hard to manage. Are there lenders worth talking to about a different loan, or would asking our current bank for help make more sense? Borrower: Household facing an income drop [Study](https://nzbrands.ai/research/banking/home-lending/) · Collected 11 October 2026 ## chatgpt Answer ID: f3028289-8125-48dd-8bd9-cf1aed1fa717 If your income has fallen and the mortgage is becoming difficult, **talking to your current bank is usually the best first move** — before looking for a new lender. A new lender may be able to offer a lower rate or restructure the loan, but if your income has dropped, you may not pass their lending checks, and switching can add costs. [Commerce Commission](https://www.comcom.govt.nz/__data/assets/pdf_file/0031/89662/Applying-for-hardship-Information-for-lenders-and-borrowers-Fact-sheet-July-2018.pdf?utm_source=chatgpt.com) A sensible order of attack in New Zealand is: ## 1. Contact your current bank’s hardship or financial assistance team Tell them your income has reduced and you want to discuss options **before you miss payments**. Banks commonly have options such as: - extending the loan term to reduce repayments - temporarily reducing repayments - a repayment deferral/payment holiday in some situations - restructuring lending [Banking Ombudsman](https://www.bankomb.org.nz/guides-and-cases/quick-guides/lending/hardship-and-financial-difficulty?utm_source=chatgpt.com) Under New Zealand’s hardship rules, if you meet the criteria, you can ask your lender to change the loan contract (for example by extending the term or deferring payments). The lender must consider the request, though they do not have to approve every request. [Financial Markets Authority](https://www.fma.govt.nz/business/services/consumer-credit/hardship-applications/?utm_source=chatgpt.com) ## 2. Consider a mortgage adviser before refinancing A good mortgage adviser can compare: - whether another bank would actually approve you with your reduced income - whether a lower interest rate would materially help - whether changing loan structure is better than switching lenders - whether there are break fees or other costs If your income has recently dropped, refinancing may be harder because a new lender will reassess your affordability. ## 3. Be cautious about “solutions” that only delay the problem A repayment holiday or stretching the loan term can create breathing room, but it may increase the total interest you pay or leave you with larger repayments later. Make sure you understand: - the new repayment amount - the new loan term - the total extra cost over time [Banking Ombudsman](https://www.bankomb.org.nz/guides-and-cases/quick-guides/lending/hardship-and-financial-difficulty?utm_source=chatgpt.com) ## 4. Prepare before you call Have ready: - current mortgage balance and interest rate - fixed-rate expiry date (if applicable) - household income now vs before - essential expenses - other debts (credit cards, personal loans, car finance) - a realistic amount you can afford each week/fortnight Given you’re in New Zealand, you can also consider free budgeting support through services such as MoneyTalks if you want help preparing a plan. [Consumer Protection](https://www.consumerprotection.govt.nz/help-product-service/borrowing-money/mortgages-and-home-loans?utm_source=chatgpt.com) A couple of details would change the best approach: 1. Has your income drop been **temporary** (for example, reduced hours or a short-term job issue) or do you expect it to be ongoing? 2. Are you currently **missing payments**, or are you trying to get ahead of a problem? 3. Is your mortgage with one of the major banks, or a non-bank lender? --- ## gemini Answer ID: b67e44b2-ea22-40fc-bfa1-dbd8cff7ea6d When your income falls and your mortgage becomes difficult to manage, your **current bank should almost always be your very first port of call**, long before looking at other lenders. Here is a breakdown of why starting with your current bank makes the most sense, what options are available under New Zealand law, and why shopping around with other lenders is rarely an effective first step in this situation. --- ### Why You Should Start with Your Current Bank 1. **Other lenders generally won't take you on:** If your income has dropped and you are struggling to service your current mortgage, other banks or mainstream lenders will view you as high risk. Under New Zealand's Credit Contracts and Consumer Finance Act (CCCFA) lending rules, banks must strictly test whether you can afford a new loan. Passing those tests with a reduced income is very difficult, meaning refinancing elsewhere is usually unviable. 2. **Legal hardship obligations:** All registered New Zealand banks are legally required to have formal processes to handle **unforeseen hardship applications**. If your income drop was due to an unexpected life event (such as job loss, reduced hours, illness, injury, or a relationship breakdown), you have a legal right to apply for a variation to your loan terms. 3. **Preserving your credit history:** Engaging early with your existing bank prevents you from defaulting on payments. Defaulting severely damages your credit score, making future borrowing or financial recovery much harder. --- ### What Your Current Bank Can Offer You When you contact your bank's financial hardship or solutions team, they can look at several ways to restructure your debt to provide immediate breathing room: * **Extending the loan term:** Spreading your remaining balance over a longer period (e.g., stretching it back out to 30 years) immediately lowers your mandatory monthly repayments. * **Temporary interest-only payments:** Switching your loan from principal-and-interest to interest-only for a set period drastically cuts your regular payments. * **A temporary payment holiday / deferral:** Pausing your repayments entirely for a short window while you sort out a new job or stabilize your income. *(Note: Interest typically keeps accruing during a holiday, meaning the total cost of your loan will increase, but it prevents immediate default).* --- ### Step-by-Step Action Plan 1. **Gather your numbers:** Before calling, map out your current household income and a realistic budget showing your essential living expenses versus what you can afford to pay toward the mortgage. 2. **Contact your bank early:** Reach out to your bank's **Financial Solutions** or **Hardship team** before you miss a payment. State clearly that you are experiencing financial difficulty due to a drop in income and wish to apply for hardship assistance. 3. **Get free, confidential backup:** If you feel overwhelmed dealing with the bank, contact **MoneyTalks** (a free New Zealand financial budgeting helpline funded by the government). A financial mentor can help you review your budget and even talk to the bank on your behalf at zero cost. Are you comfortable sharing roughly how much your income has dropped, or whether this was caused by a sudden change like a job loss or reduced hours? --- ## ai-mode Answer ID: cd619926-4d45-40ad-a6ab-28efe3829c61 When your income drops, dealing with your mortgage can feel overwhelming. Generally speaking, **talking to your current bank first almost always makes the most sense** before looking at other lenders. Here is a breakdown of why starting with your current bank is the logical first step, how alternative lenders fit into the picture, and what options you have in New Zealand. Why You Should Talk to Your Current Bank First * * **Hardship Provisions:** Under the Credit Contracts and Consumer Finance Act (CCCFA) in New Zealand, all major registered banks have formal **hardship assistance processes**. If your income has fallen due to reduced hours, job loss, illness, or a relationship split, you have a legal right to apply for a variation to your loan contract. * **Temporary Relief Options:** Your current bank can often offer short-term breathing room that other lenders won't touch if your income has just dropped. This can include temporarily pausing principal repayments (interest-only payments), extending the total loan term to lower regular payments, or a short deferral period. * **No Re-application Friction:** Refinancing to a new bank requires full re-qualification under current, strict lending and income criteria. If your income has already fallen, a new lender is likely to **decline** your application because your servicing capacity (debt-to-income or expense ratios) no longer meets their standard criteria. * **Cost and Process:** Sticking with your current bank to restructure or seek temporary relief avoids discharge fees, legal fees, and valuation costs associated with moving to a new provider. * When Other Lenders (or Refinancing) Come In * * **Refinancing to Another Main Bank:** Moving your mortgage to a different mainstream bank only works if your reduced income still comfortably passes the new bank's affordability and lending test. If your income drop is permanent (e.g., a career change or retirement transition) and you still have good equity and stable, sufficient cash flow, shopping around for a better rate or cashback offer via a mortgage broker can make sense. However, it rarely helps if affordability is the primary immediate barrier. * **Non-Bank Lenders:** There are alternative or non-bank lenders in New Zealand. They can sometimes have more flexible policies if a traditional bank says no, but their interest rates are often **higher** than mainstream banks. Using a high-rate non-bank lender to solve an income-shortage problem can quickly accelerate debt rather than relieve it. * Recommended Steps to Take Now 1. **Contact your current bank's hardship team early:** Do not wait until you miss a payment. Call them and explicitly state that you are experiencing financial hardship due to a drop in income. 2. **Prepare your numbers:** Have a clear breakdown of your current household income and a realistic budget showing your essential living expenses versus your mortgage commitments. 3. **Get free independent budgeting advice:** If you want help structuring your conversation or organizing your budget before calling the bank, you can contact **[MoneyTalks](https://moneytalks.co.nz)** , a free and confidential financial helpline in New Zealand. If you'd like, let me know: * Is the income drop **temporary** (e.g. short-term illness or job transition) or **permanent**? * Roughly how long is left on your **current fixed-rate term**? I can give you more specific advice on what to ask your bank for. --- ## ai-overviews Answer ID: 1a62d753-3340-4457-a384-3f2d12a57add **Talking to your current bank immediately makes the most sense.** Because your income has fallen, switching to a new lender is highly unlikely to work right now. New Zealand banks are tightly bound by strict servicing calculations and **Debt-to-Income (DTI) restrictions** ; if you cannot prove your current income comfortably covers a new loan under standard testing rates, a new lender will simply decline your application. Approaching your current bank is your best path forward because NZ lenders are legally required to consider **financial hardship requests** and have structured frameworks to help you keep your home. * * * Why Moving to a New Lender is Unviable Right Now * **The Servicing Trap:** When you refinance with a new bank, they treat it as a brand-new loan application. They will test your lower income against their current "test rates" (which are higher than actual market rates). If your income has dropped, you likely won't pass their Uncommitted Monthly Income (UMI) criteria. * **Refinancing Costs:** Moving lenders introduces immediate administrative frictions, including **mortgage break fees** if you are on a fixed term, as well as legal fees for the Mortgage Discharge Process . Compare the best-rated home loans in New Zealand | CanstarThe Complete Guide to Discharging Your Mortgage in New * * * What Your Current Bank Can Do For You Your current lender has a dedicated financial hardship or "financial solutions" team. Because banks generally want to avoid mortgagee sales, they can offer several temporary levers to reduce your immediate cashflow pressure: Strategy| How it works| Pro / Con ---|---|--- **Switching to Interest-Only**| You pause paying the principal loan amount and only pay the interest component for a set period (e.g., 6–12 months).| **Pro:** Significantly lowers your monthly cash outgoings. **Con:** The total cost of your loan increases over time. **Extending the Loan Term**| If you originally took a 25-year loan and have paid it down, the bank can stretch the remaining balance back out to a 30-year term.| **Pro:** Permanently reduces the compulsory minimum payment. **Con:** You will pay significantly more total interest over the life of the loan. **Repayment Deferrals ("Holidays")**| You pause payments entirely for a very brief window (usually up to 3 months) while you get back on your feet.| **Pro:** Immediate, absolute cashflow relief. **Con:** Interest continues to compound and gets added to your loan balance. **Dropping to Minimum Payments**| If you were proactively paying extra each fortnight, you can instantly scale back via your banking app to the bare minimum.| **Pro:** Quick cash flow fix without needing formal approvals. **Con:** Slows down your long-term debt-free timeline. * * * Step-by-Step Action Plan 1. **Check Your Current Baseline:** Look at your mobile banking app or online portal. Check if you are currently paying above the minimum requirement. If you are, drop it to the minimum immediately to buy yourself breathing room. 2. **Gather Income Evidence:** Before you call the bank, gather your new proof of income (e.g., updated payslips, redundancy letters, or revised business accounts). The bank will need an accurate picture of what you can realistically afford to pay right now. 3. **Contact the Hardship Team:** Do not call the general customer service line. Request to speak directly with your bank's **Financial Hardship / Solutions team**. Explicitly state that you have experienced a permanent or temporary reduction in income and want to proactively restructure your loan before missing a payment. 4. **Be Aware of the "Hardship Flag":** Note that when a bank formally grants hardship assistance, a **hardship flag** is temporarily added to your credit report under NZ comprehensive credit reporting rules. While this protects your record from showing missed payments or defaults, it may temporarily limit your ability to get new credit elsewhere until your situation stabilizes. * * * If you want to map out your next move, let me know: * Is your current loan **fixed or floating** , and when does it next roll over? * Do you expect this income drop to be **temporary** (e.g., redundancy/job hunt) or **long-term**? * Roughly how much **equity** do you have in the home (loan balance vs. estimated value)? I can give you more specific talking points to use when you call your bank.