Before you get a mortgage you should be informed about mortgage repayment holidays and if your mortgage allows one.
A mortgage repayment holiday is a good option if you are in financial difficulty, here’s all you need to know about it and how to take it.
What is a mortgage repayment holiday?
A mortgage repayment holiday is when you and your mortgage lender agree to defer your mortgage payments in full or part. This is usually done when the borrower is in financial difficulty or has an emergency need for the funds.
Mortgage repayment holidays usually last for a few months.
Once the mortgage repayment holiday is over you will resume your monthly mortgage repayments but they will have risen to compensate for the missed payments and due to the interest rate, charges on the debt have been backdated and piled up.
A mortgage repayment holiday is a good idea when you are struggling to keep up your monthly mortgage repayments but ideally your mortgage should be plugged into a mortgage management platform.
This will ensure you do not miss out on any potential savings through remortgaging or overpaying on your mortgage.
How to get a mortgage repayment holiday
To get a mortgage repayment holiday you should contact your mortgage lender to ensure this is something you can do or check the terms and conditions of your mortgage.
Once you have confirmed you can take a mortgage payment holiday, check how much of a holiday you can take and how much it will cost you in interest and increased monthly mortgage repayments after the mortgage payment holiday is over.
You must ensure you can afford to keep up the monthly repayments after the mortgage payment holiday.
Missed mortgage repayments will definitely negatively affect your credit score and you might find it hard to gain access to further credit in the future.
How does a mortgage repayment holiday affect your credit score?
A mortgage repayment holiday will not leave a negative impact on your credit score as the mortgage lender will mark this in a positive manner.
If you however miss further agreed repayments then this will be reflected negatively on your credit file.
Alternatives to a mortgage repayment holiday
Rather than take a mortgage repayment holiday you could increase your mortgage term and this will reduce your monthly mortgage repayment.
You can also get income protection when you get your mortgage this will ensure a percentage of your income is paid when you find yourself in difficulty such as losing you job or getting injured.
Mortgage protection insurance will also pay a fixed amount to your mortgage lender if you cannot afford to keep up your monthly mortgage repayments.
Can’t pay your mortgage? Steps to take
Before you get a mortgage, you should have a good idea of what options you have if you find yourself in a situation where you can keep up with your monthly mortgage repayments.
Identify the problem:
Are you out of a job? Did you just mismanage your spending for the month, was there an emergency that took out of your income or has your mortgage just risen drastically without much notice and hence you can’t afford it. Identifying the problem is important before you look at solutions.
Whilst some solutions such as fair short term credit might be applicable, they won’t be if you are in a long term problem such as losing your job or your mortgage interest rates rising.
If your problems are short term such as mismanagement of funds or emergency use of funds then short term credit may make sense.
Regardless of what the problem is there are a few basics you must have in place to ensure your financial wellbeing is constantly in check and that you are never overpaying for any financial product including your mortgage.
Your mortgage should be managed by a mortgage management platform.
Mortgage management platforms will let you know when there are savings in your mortgage by remortgaging or when you can save on interest rates by overpaying your mortgage.
Mortgage management platforms notify you when to overpay and by how much whilst letting you know beforehand how much interest you will likely save.
Valuable! yes we know.
If your problem isn’t short term and hence doesn’t have a short term solution, here are the steps you should take.
Tell your mortgage lender:
Talking to your mortgage lender will prepare them and allow them to give you certain options such as a repayment holiday; this is when you come to an agreement with your mortgage lender to to stop or reduce your monthly mortgage repayment for an agreed period.
This ofcourse means it will cost you more in the future as your interest repayments accumulate but it’s a way to get some breathing room whilst you sort things out.
Your mortgage lender might also be able to simply defer the mortgage repayment for that month or extend your mortgage term so your monthly mortgage repayments are much smaller (this might work out more expensive in the long run).
Your mortgage lender might also be able to simply accept smaller repayments in the short term.
There are mortgage schemes that could help you keep up your mortgage repayments. In the uk we have the support for mortgage interest and in Scotland we have the homeowners support fund.
These schemes can assist you if you have any of the below.
- Income based job seekers allowance
- Income support
- Pensions credit
- Income related employment and support allowance
These schemes can help you with your mortgage interest repayments and not the capital, to find out if you are eligible contact the pension services or Job centres plus.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.