What is a mortgage payment holiday?
A mortgage payment holiday is an arrangement you may make with your lender, allowing for a temporary reduction or stopping of your monthly mortgage repayments. Reducing your payments or pausing them means they are effectively deferred payments which will have to be caught up eventually.
This arrangement will depend on your circumstances and payment history and the length of a payment holiday allowed will vary between lenders but could be up to 12 months. Not all lenders allow mortgage payment holidays and so it often will depend on the product terms and conditions set out by the lender.
Who is eligible for a mortgage payment holiday?
Every lender will have different eligibility rules but in general terms, the following criteria could apply:
- your mortgage payments must be paid up until a payment holiday is authorised
- you have had your current mortgage for a minimum period (each lender will be different)
- you have not had a previous payment holiday within a period of time (each lender will be different)
- your outstanding mortgage balance is lower than a specific percentage of the value of your home - the loan to value (each lender will be different)
- your mortgage is for a home you reside in and is not on a shared ownership basis
- you have paid 6 months or more of mortgage payments since taking a mortgage payment holiday due to coronavirus
Are mortgage payment holidays a good idea?
As a short-term solution to a difficult financial situation, mortgage payment holidays can be a useful means of managing your outgoings. However, long-term financial difficulty may not be alleviated with this solution as the time period is limited and accrued payments may add to financial pressures eventually.
Pros
- A mortgage holiday can relieve some financial pressure in the short term
- If you have a temporary drop in income or then arranging a mortgage holiday can be a sensible move
- Taking an arranged payment holiday could avoid a defaulted payment which would be recorded on your credit file
Cons
- If you arrange a mortgage holiday whatever the interest rate is will still be applied to your mortgage and therefore your mortgage balance will increase
- Once the mortgage holiday is over then you need to arrange with your lender whether you can extend your mortgage term or increase monthly payments to pay off the increased loan
- If your lender agrees to a mortgage holiday your credit file may be affected which in turn may affect your ability to get a mortgage in the future
How do I arrange a mortgage payment holiday?
- check the terms of your mortgage to see if you can apply for a mortgage holiday
- if you have only recently arranged your mortgage then there may be a minimum period before you are eligible for a mortgage payment holiday scheme
- contact your lender to apply for a mortgage holiday - some applications can be started online
Will a mortgage payment holiday affect my credit rating?
A mortgage payment holiday can affect your credit score so arranging one should really be your last resort as the adverse effect on your credit rating with credit reference agencies could damage your chances of getting future credit.
Firstly, I would suggest you review all your outgoings to see if you can save some money in that area. Our article - Start ‘big picture’ budgeting will give you a step-by-step process to follow. Alternatively, consider using a budgeting app to help categorise your spending and identify wasteful subscriptions. Check out our article 'Best budgeting apps in the UK - how to budget without trying'.
