Monthly mortgage repayments are the first thing on most people’s mind when money becomes tight. Whatever your circumstances, if you’re struggling to keep up with your mortgage payments, there are a number of ways to get back on track.
One way to ease the short-term strain is applying for a mortgage holiday, so let’s take a look at its benefits and drawbacks, and whether it’s the right financial move for you.
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What is a mortgage holiday?
A mortgage payment holiday is an agreement between you and your lender that enables you to temporarily reduce or stop your mortgage repayments.
This will be for an agreed period of time depending on your circumstances and the print on your particular deal with your lender. While payments are paused or reduced, it’s important to note that interest will still be building on your debt, and therefore you won’t save money in the long-term. Mortgage holidays are typically used to ease the short-term financial burden during challenging times.
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How do mortgage holidays work?
Mortgage holidays place a temporary pause on your mortgage repayments for a set period of time. This doesn’t mean that the lender will cover the cost for you or write off some of your repayments. Instead, you can take a break and return to making your monthly repayments at a later date.
Because of this, interest will build on your monthly debt, so when you do resume your payments, your monthly amount will be higher depending on how long your mortgage holiday was.
Will taking a mortgage holiday affect my credit score?
Mortgage holidays should not have a negative effect on your credit report. This is because mortgage holidays are not classified as ‘missed payments’ since you already agreed on the holiday with your lender.
However, while your mortgage holiday shouldn’t have a detrimental effect on your credit score, it can still have an impact on your future ability to secure a mortgage. Some lenders will assess your payment history when making a decision, and mortgage holidays might bring affordability into question.
Related: Should I use a mortgage broker?
Can I qualify for a mortgage holiday?
Taking a mortgage holiday isn’t a decision that you or your lender should take lightly. Therefore, many lenders will lay out a criteria for mortgage holidays in the terms and conditions of your mortgage agreement. Your lender will also consider the following:
Financial difficulties
If you can prove that you are struggling to meet your monthly repayments, your lender may offer you a mortgage payment holiday to help out.
History of overpayments
A history of paying more than your agreed monthly repayments or overpaying with a one-off lump sum means you may have built up a safety net to cover a break from making your monthly mortgage repayments.
The minimum number of repayments
Most lenders will only agree to a mortgage holiday if you have met the minimum number of repayments. This is a set period of time – usually 12 months – where you’ll need to pay off your loan on time before you can apply for a mortgage payment holiday.
Previous mortgage holidays
If you’ve already had a mortgage holiday in the past year, you will not be approved for another. Your lender will likely offer alternative solutions if you’re still struggling to keep up with mortgage repayments after taking a break, for example, they may offer to temporarily lower your monthly repayments.
What else can I do if I’m struggling with mortgage repayments?
Mortgage holidays aren’t the only solution, so make sure to get in touch with your lender as soon as you’re experiencing difficulties, as they can offer guidance on the following alternatives:
- Remortgaging
- Switching to an interest-only mortgage
- Making partial payments
- Extending your mortgage term
Remember, it’s in your lender’s best interest to help you in any way they can. It’s essential to contact your lender if you’re struggling to manage your mortgage repayments. They may be able to offer alternative repayment arrangements, or provide advice on how to navigate your situation.
For more advice, contact your local Whitegates branch today.
