Certain mortgage agreements allow you to take what’s known as a ‘mortgage payment holiday’, allowing you to temporarily stop or reduce your monthly payments.
As many as two million people are considering taking one of these payment holidays, but are they a good idea? And how do you go about taking one?
What is a mortgage payment holiday?
A payment holiday is an agreement with your lender to either stop or reduce your monthly mortgage payments.
These depend on your payment history but could last anywhere from a month to a year.
All lenders will have different terms and conditions and many don’t offer payment holidays at all.
Am I eligible?
Again, this will depend on your lender’s terms, but also on your own financial history. In fact, in many cases, you will have to have overpaid on your mortgage and built up a certain amount of credit before you can qualify for a break.
However, your lender may also allow you to take a break if you are struggling to make payments due to extenuating circumstances such as redundancy or maternity leave.
If your mortgage has fallen into arrears, then you definitely will not be eligible, but you should still probably get in touch with your lender to discuss your options.
The obvious big advantage of taking a mortgage payment holiday is that it instantly relieves pressure and gives you one less outgoing cost to worry about.
This is especially useful if you know that you’re only facing a temporary drop in income, for example if you or your partner have just given birth and just need to cover the maternity period.
Even though you won’t be making payments, you’ll still be racking up interest on your remaining balance and when your payment holiday does come to an end your balance and monthly payments will be higher than they previously were.
Your credit rating will also be affected in the future, so while mortgage payment holidays can be a good idea in the short term, they’re certainly not the answer if you’re facing a long-term drop in income.
How to apply for one
Speak to your lender and make sure that they’re willing to offer you a mortgage payment holiday and also make sure that you’re eligible and will meet their terms and conditions.
Some typical conditions from lenders:
- You’ll usually have to have made payments on time for a period of at least six months to a year.
- You must not be in arrears.
- Some lenders will have a maximum loan-to-value ratio that they’ll allow (often around 80%).
To ensure you are eligible in case you ever do want to take a payment holiday, make sure that you always make your monthly payments on time and consider overpaying from time to time.
Bear in mind that the length of the holiday you’ll be able to take will vary between lenders.
For example, Halifax allow you to take no more than six months over the entire course of the mortgage while Nationwide will allow anywhere between three and twelve months.
Before deciding to apply for a mortgage payment holiday, make sure you consider what your monthly payments will be after it finishes.
Mortgage payment holidays certainly aren’t for everyone, especially if you’re facing a long-term loss of income.
If this is the case it’s best to contact your lender as there may be other options available to you, including:
- Extending your mortgage
- Converting to an interest mortgage (remember that the capital will have to be paid off at some point)
- Trying to cut costs in other areas (feel free to get in touch with ourselves or the Citizens Advice Bureau for tips on how to do this.)
Should I take one?
On the whole, we would not recommend taking a mortgage payment holiday, as its best to keep up with your payments month on month, hence why it’s so important to find a mortgage deal that’s right for you in the first place.
As you can see in this report from the Independent, many financial experts warn against opting for payment holidays.
Instead, a mortgage payment holiday should be seen as a last resort, as in the long term it will end up costing you more and should only be considered if you’re really struggling to make your payments.
If you are considering taking a payment holiday, we recommend getting in touch with one of our advisors so that we can outline all of the options available to you.