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Mortgage payment holiday | What You Need to Know

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A mortgage payment holiday is a temporary break from making payments on your mortgage. It allows homeowners to temporarily suspend their mortgage payments for an agreed period of time. Typically between 1 to 6 months, or sometimes even longer. During this time, homeowners are not required to make any monthly repayments to the lender. Let’s take a closer look at the implication of a payment holiday.

What is a mortgage payment holiday?

A payment holiday is a temporary arrangement between a borrower and a lender that allows the borrower to pause or reduce their monthly mortgage payments for a specified period, typically up to three months.

This arrangement is designed to provide short-term relief if you’re facing financial difficulties, such as loss of income. It is typically used as a last resort.

Is a payment holiday short-term?

While a repayment holiday can provide short-term financial relief, it can result in higher overall interest charges and an extension of the loan term.

The interest and charges that would have been due during a repayment holiday period are added to the outstanding mortgage. This increases the amount that needs to be repaid over the remaining term of the loan.

Am I eligible?

You must be able to demonstrate to your lender that you’re facing financial difficulties due to circumstances beyond your control. This could be through job loss, reduced income, or unexpected expenses.

You must also have a good history of making mortgage payments and be up to date with your payments at the time of application.

If you believe you are eligible for a payment holiday, the first step is to contact your mortgage lender. They will assess your situation and discuss the available options with you.

It’s essential to approach your lender as soon as you anticipate difficulty making your mortgage payments. This will ensure that support measures can be put in place before you fall behind.

Implications of a mortgage payment holidays

Before applying it’s crucial to understand the potential implications:

  • Increased mortgage balance. Missed payments during the payment holiday are added to your outstanding mortgage balance, meaning you will owe more than before.
  • Higher monthly payments or longer mortgage term. Once the payment holiday ends, your lender will recalculate your monthly payments to account for the increased mortgage balance. This may result in higher monthly payments or an extension of your mortgage term. This will depend on the arrangement agreed with your lender.
  • Continued interest accrual. Interest will continue to accrue on your mortgage balance during the payment holiday. Meaning the overall cost of your mortgage will increase.
  • Impact on credit score. While a mortgage payment holiday agreed upon with your lender should not directly impact your credit score. It may still be visible to other lenders when assessing your creditworthiness for future borrowing.
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Are there alternatives to mortgage payment holidays?

Yes! If you’re struggling with mortgage payments but are concerned about the implications of a payment holiday, consider discussing alternative options with your lender, such as:

  • Extending the mortgage term – By extending the length of your mortgage, your monthly payments may be reduced, making them more manageable.
  • Switching to interest-only payments – Temporarily switching to interest-only mortgage payments can lower your monthly mortgage costs, providing relief.
  • Remortgaging – If you have sufficient equity in your home, you may be able to remortgage to secure a more favourable interest rate or payment terms.
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Avoid mortgage arrears

A mortgage payment holiday can provide temporary financial relief for homeowners facing financial difficulties. If this resonates with you it’s important that you avoid mortgage arrears and speak to your mortgage broker or lender as a matter of urgency.

Understand the potential implications and explore alternative options before you proceed. Contact your lender as soon as possible and discuss your options to find the most suitable solution for your circumstances.

Always remember that your home may be repossessed if you do not keep up repayments on your mortgage.

Last Updated: March 25th, 2023

Phil Spencer

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