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Your Complete Guide to Mortgage Payment Holidays

Posted 14 May 2018

Want to take a mortgage payment holiday? Read our complete guide to how they work, and the pros and cons...

If your finances are tight, then you might be thinking about taking a mortgage payment holiday. Some lenders allow you to suspend your payments for a few months – although they will want you to pay this money back eventually.

Keep reading for your complete guide to mortgage payment holidays.

What is a mortgage payment holiday?

A mortgage payment holiday is an agreement you come to with your lender where you either stop making your mortgage repayments, or pay less, for a period of several months.

A payment holiday normally lasts no more than between 1 and 12 months and at the end of the holiday you resume your repayments.

Remember that interest will continue to accrue on your mortgage even if you aren’t making any payments. So, your mortgage payments may have increased at the end of the payment holiday because of this extra interest and to take into account the payments you have missed.

Why you might want to take a payment holiday

There are several reasons that you might want to take a mortgage payment holiday. These include:

  • You are facing a period off work due to maternity
  • You are separating from your partner or going through a divorce
  • You are dealing with a bereavement
  • You are ill and/or off work for an extended period through ill health
  • You face unexpected household expenditure.

If your employment status has changed then lenders are less likely to offer you a repayment holiday. Lenders may be concerned about your ability to repay your home loan even if you’re temporarily out of work.

What you should do to apply for a mortgage payment holiday

Not all lenders offer this facility. Whether you can take a mortgage payment holiday depends on:

  • Your lender
  • Your circumstances
  • Your mortgage deal
  • Your payment history.

To qualify for a mortgage payment holiday, you will normally have to have made your payments in full and on time for a minimum period. In some cases, a lender will need you to have overpaid on your mortgage to let you take a payment holiday and you may also have to have some equity in your home.

Most repayment holidays are for between 1 and 12 months. To find out if you are eligible, check your mortgage terms and conditions or ask your lender.

Some lenders do not offer this facility at all. An HSBC spokeswoman says: “Most of the time customers who want a payment holiday are struggling with their finances so a break wouldn't necessarily be the best solution – a bit like putting a plaster on the problem rather than solving it.”

How to increase your chances of getting a mortgage repayment holiday

1. Overpay

If you have overpaid on your mortgage, then you increase your chances of being granted a payment holiday. If you have regularly overpaid, then you will have either reduced your mortgage balance or shortened your mortgage term – both factors that a lender will consider favourably.

Some lenders will only let your take a payment holiday if you have made overpayments to your account.

2. Don’t ask too soon

If you haven’t held your mortgage for very long, then it’s less likely your lender will agree to a payment holiday. They will want to see a track record of you making your repayments on time.

3. Pay your mortgage on time

Before you ask for a repayment holiday make sure you are not in arrears. If you’ve missed payments before then you probably will not be granted a repayment holiday.

Alternatives to taking a payment holiday

You’re probably considering asking for a payment holiday because your finances are stretched. If so, there are plenty of alternatives to consider.

Firstly, you may be able to switch to a better mortgage deal. If you have equity in your home and you’re not tied in to an existing tracker rate then you could remortgage, get a cheaper deal and lower your repayments.

For example, a mortgage of £150,000 at a rate of 3.99% would cost around £790 per month. Taking a deal at 2.99% would see your repayments fall to £710 a month, saving you nearly £1,000 a year.

An independent mortgage broker can explore your options and recommend the most appropriate deal for your circumstances.

If you can currently afford your mortgage but you’re worried about the future, then you could consider taking out some sort of payment or income protection. This type of cover can pay out a monthly amount if you lose your job, become ill or injure yourself. There are two main types:

  • Mortgage protection insurance – usually pays a fixed amount per month
  • Income protection insurance – usually pays a percentage of your monthly salary.

If you can afford your repayments now, then it can pay to put some money aside in am ‘emergency fund’. By saving some money monthly you will have some spare cash to use in the future if you’re struggling to pay your mortgage. This will help you avoid having to take a payment holiday.

Another alternative is to speak to your lender to find out what your options are. Many banks and building societies have policies in place to help borrowers who are struggling with their repayments and they may be able to offer alternative options.

For example, if you have a capital and interest mortgage then your lender could extend your mortgage term to bring down your repayments. This may cost you more overall, but it could reduce the amount that you pay in the short term.

Your lender may also let you switch to ‘interest-only’ payments for a short period. This can increase the total amount of interest you will pay but may prove cheaper or more suitable than a payment holiday.

 

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