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Mortgage repayment holidays

A mortgage repayment holiday is a break from making your regular monthly mortgage payments, and is used by those who are struggling to keep up with their debts and need some breathing room to recover their finances.

A mortgage repayment holiday will end up costing more in the long run as the interest will get added on to your mortgage, so it’s important to weigh up all of your options and see if there is a better way to resolve your financial issues rather than taking a repayment holiday.

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What is a repayment holiday?

A repayment holiday is an agreement with a lender to allow you to take a break, usually for a month or two, or perhaps longer, from your usual payment plan.

For example, if you have a mortgage repayment due, you could ask for a repayment holiday to stop making payments for, say three months, and if that was granted then you won’t pay anything for three months.

However, the three months of interest you owe will be added to your mortgage, and therefore mean you owe more than you previously did.

The length of a mortgage repayment holiday will vary from lender to lender, and also depending on your circumstances, but the maximum period can range between around 6 months and 12 months.

How can I get a mortgage repayment holiday?

Firstly, you should check your mortgage’s terms and conditions to see whether or not yours allows repayment holidays.

If it’s possible, then there are a few things to bear in mind to improve your chances of being allowed to get a mortgage repayment holiday:

  • Don’t ask for one too soon

If you’re still in the early stages of your mortgage repayments, say, only a year or two in, then you’re far less likely to be granted a mortgage repayment holiday. The longer your track record of being a reliable customer is, the more likely it is that your lender will trust you to complete the mortgage even after taking a repayment holiday. Usually mortgage providers need you to have made your payments on time for a minimum of around 6 months before you can apply for a repayment holiday.

  • You may not get one if you never make any overpayments

Overpaying your mortgage can improve your chances of being granted a repayment holiday. If you regularly overpay on your mortgage, then you’ll have shortened the length of your mortgage. This would, in theory, allow you some leeway if you needed to take a repayment holiday. Some mortgage providers might only give you a repayment holiday if you have a history of making overpayments.

  • Make sure you don’t miss any payments

Before you ask for a repayment holiday make sure you are not in arrears by more than one month. If you’ve missed payments before then you probably will not be granted any repayment holidays, and you could risk having your home repossessed.

  • Don’t ask for too many repayment holidays

It may seem obvious but if you take too many repayment holidays then you’ll end up having to pay far more in interest later on. The interest will be higher in the months after your holiday repayments. In addition, you could push your mortgage’s Loan to Value (LTV) over the limit. For example, if you have a mortgage that will give you a maximum LTV of 90%, and you take too many repayment holidays, then you’ll be turned down.

If you are not sure, then double check with your lender first.

What can I do if I can’t afford my mortgage?

A mortgage repayment holiday should only be considered as a last resort. Speak to your mortgage provider if you are having trouble keeping up with repayments. Lenders are regulated by the Financial Conduct Authority and are expected to make an effort to treat customers with a certain degree of care.

If you fail to keep up with repayments then your home could be repossessed, but repossession is often a last resort for lenders. Many mortgage lenders would prefer to come to a mutually beneficial solution, so when it comes to explaining your circumstances and situation emphasise that it is temporary and you will be able to repay your mortgage.

A repayment holiday should be a last resort, but here are some alternative options you could consider taking first:

  • Ask for an extension on your mortgage term

If your mortgage term is 20 years, for example, then asking your mortgage provider to extend it to 25 years means you would be able to reduce your monthly payments. It would benefit the mortgage provider as you wouldn’t have to miss any repayments, but it will cost you extra in interest. Calculate the difference in cost between a repayment holiday and a mortgage term extension first.

  • Switch to an interest-only mortgage

This might be quite difficult to do as interest-only mortgage payment options are becoming less common. If your mortgage provider will allow it, you can offer to pay just the interest on the repayments, which would significantly bring your monthly costs down. However, you would still owe the capital at the end of the mortgage term, so you would need a plan on how to save up enough money to pay it back.

  • Budget and get debt advice

Before considering making any big decisions about your mortgage that could force you into more debt in the long run, put together a household budget and find ways to bring down costs. You could also speak to Citizens Advice Bureau for free debt help and advice.

Could I remortgage to get lower mortgage payments?

One option available if you feel you are paying too much on your mortgage is to remortgage, which is to switch to a new mortgage provider and move to a new introductory deal.

However, if you are at the stage where you feel like you might need a repayment holiday, then a remortgage might not be a good idea.

A remortgage deal can help switch your current mortgage payments to a lower interest rate, but there are always fees to pay in order to leave your current mortgage and to switch to a new one.

Although a remortgage deal can be a great way to save money because the savings can often more than make up for the fees, it should be done at the right time. If you are forced into rushing into one then you may not get a great deal, and if your financial difficulties are so bad that you are facing arrears on your mortgage payments, it’s best to stay clear of remortgaging, which will, at least in the short term, cost you more money.

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