Should You Take a Mortgage Payment Holiday?

illustration of Should You Take a Mortgage Payment Holiday?

If you’ve found yourself struggling during the COVID-19 pandemic, a mortgage payment holiday can be a lifeline. Your mortgage payment is probably your biggest outgoing, so pausing this can help keep you on top of your finances during a tricky time.

What is a mortgage payment holiday?

A mortgage payment holiday is where you agree with your mortgage lender to pause your repayments for a set amount of time. During this time, you won’t have to make mortgage payments, but you’ll have to pay it back eventually.

To make up for the holiday, you’ll either increase your monthly payments, or your mortgage term will be extended.

You won’t be charged a fee for taking a mortgage payment holiday, but you may end up paying more interest in the long term. It’s best to weigh up your options before going ahead with a holiday. 

How to apply for a mortgage payment holiday

The deadline to apply for a mortgage payment holiday is currently 31st March 2021. You’ll need to apply to your lender directly.

You mustn’t cancel your direct debit. If you stop your payments but haven’t formally applied for a payment holiday then you can end up defaulting and damaging your credit rating. That’s the last thing you need if you find yourself struggling. 

Your credit score shouldn’t be affected by taking a mortgage payment holiday, but it’s best to check with your lender in case they do things a bit differently. You can check your credit score and credit history for free with a trial of checkmyfile.

Remember that any future lenders will be able to see you’ve taken a mortgage payment holiday from the gaps in your payment history. This isn’t necessarily a bad thing, but it’s worth bearing in mind that it could affect a lender’s decision in the future. 

It’s not a good idea to take a payment holiday just for the sake of it. Having some extra cash in the bank might seem appealing, but if you can afford it, it’s better to carry on with your regular repayments. 

How to apply for a payment holiday:

  1. Speak to your mortgage lender
    Find out if you’re eligible for a mortgage holiday. Payment holidays aren’t automatic, so don’t cancel your direct debit without speaking to your lender first, they will have to agree to your payment holiday first. Most of the time, you won’t need to amend your direct debit, as your lender will simply pause taking the money while you’re on the mortgage payment holiday.

  2. Put in a request
    Your lender will look at your request and your current circumstances when deciding whether to approve your payment holiday. You’ll usually get a decision pretty quickly. You won’t need to do another affordability check, you’ll just have to confirm that your finances have changed due to the pandemic. 

You can apply for a payment holiday for a total of six months (this can be taken at different times, but six months is the limit.) If you’ve already clocked up six months, you won’t be able to get another holiday. If you’re struggling, you should talk to your lender to see how else they could help you. 

What happens after my payment holiday?

Once your holiday’s over, you’ll see your following monthly repayments increase. You’ll have had to make up for the break in payments by either extending your mortgage term, or making interest/capital payments:

Increasing the length of your mortgage term

Making your mortgage longer means your monthly repayments wont go up by too much. However, you’ll be paying your mortgage back over a longer period which means you’ll be paying more interest in the long run.

Making interest-only or capital-only repayments

Paying just the interest, or just the capital (the amount you’ve borrowed) is an option. 

This brings down the increase in your monthly repayments, but you’ll still need to pay back anything outstanding on your normal monthly payments.

Can I get a mortgage payment holiday if I’m in arrears?

Yes, it’s still possible to get a mortgage payment holiday if you’re currently in mortgage arrears. It shouldn’t stop you applying if you need it. If you’re worried about repossession, you can’t currently be repossessed (without your permission) until 1st April 2021. 

If you’re in a Debt Management Plan (DMP), you should still be eligible for a mortgage holiday. However, if you’re struggling, it’s best to speak to your lender who will be able to help you.

Can I get a mortgage holiday that’s not related to COVID-19?

There’s slightly different rules when it comes to mortgage holiday requests that aren’t a result of coronavirus. You’ll need to approach your lender to discuss your options, and make sure you understand the impact before you go ahead. 

What if I have a buy-to-let mortgage?

Buy-to-let mortgages work a bit differently. Generally, they’re not covered by the same FCA payment holiday regulations that standard mortgages are. 

However, if you’re a landlord and your tenants have been financially affected by COVID-19, you may be covered. If you manage to get a buy-to-let mortgage holiday, you’ll be expected to give your tenants a rent holiday too.

Should I take a mortgage holiday?

It’s a good question, and not one with a straight answer. If you’ve found yourself struggling financially since the pandemic, then a mortgage holiday could be a great option. It’s a common request, with lots of people choosing to take a break from their mortgage repayments while the pandemic continues.

You’ll need to consider your options and be sure you won’t struggle to make the increased repayments when your holiday ends.

It’s best to speak to your lender to find out your options. You can also speak to a specialist mortgage advisor who can give you guidance on the best options for you.

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