What Happens if You Need to Take a Mortgage Holiday?
The coronavirus pandemic has left many with a feeling of uncertainty about the future.
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Fortunately, homeowners who are feeling anxious about money-related circumstances related to their home can apply for a mortgage holiday, easing the financial burden placed on them by Covid-19.
Since the start of the outbreak, over two-million homeowners have taken out a mortgage holiday. But is it the right option for you? And if you decide to go down the mortgage holiday route, what requirements are involved?
In this guide, we’re taking a deeper dive into mortgage holidays for those of you who may have experienced financial difficulties. If you’re unsure about what to do next, read on and find out everything you need to know about taking a mortgage holiday.
What is a mortgage holiday?
In short, a mortgage repayment holiday allows you to stop paying for your mortgage for a temporary period. Mortgage holidays have always existed to some extent but were a rarity before the coronavirus pandemic.
Initially, applying for a mortgage holiday meant jumping through plenty of hurdles. Since the outbreak, however, applying for a mortgage payment holiday has been easier to obtain for people who are struggling financially as a result of Covid.
The first set of mortgage holidays lasted for three months. But on the 1st November 2020, the government announced they would be extended for another six months. Payment holidays are also referred to as “payment deferrals” depending on your lender, so don’t be too concerned if you hear this term bandied about.
Should you take a mortgage holiday?
A mortgage holiday could be the best option for anyone who is struggling to keep up with their payments. However, it’s important to look at every factor involved before applying. Even if you have taken a financial hit as a result of Covid, you might still be able to cover your mortgage repayments comfortably.
Homeowners that can still make payments should continue to do so – you should really only apply if you find yourself struggling to keep up with repayments. Once the payment holiday is over, you will still need to pay the amount owed, either through higher monthly repayments or an extended mortgage term.
How do you apply for a mortgage holiday?
How do you apply for a mortgage holiday?
Before applying, you will need to meet specific criteria. Mortgage holidays are generally only available to homeowners who have kept up with repayments and are up to date on their mortgage terms – though you can double-check with your lender.
Landlords with a buy-to-let mortgage can also apply if their tenants are struggling to pay the rent. Payment holidays are open to anyone who is concerned about their ability to keep up with regular payments – and, no, you don’t need to have had coronavirus.
Can you spread mortgage holiday repayments?
Homeowners who take a mortgage holiday will need to pay the money back once the deferral is finished. Currently, payment holidays last for three months and can be extended for a further three months if need be.
After that term, the way in which you pay the incurred cost of the mortgage back depends on the lender. Some will take the amount owed and increase your monthly payments slightly; others will simply add it to the term of the mortgage. Eg, if your mortgage is for 25 years and you took a three-month holiday, your new mortgage length would be 26 years and three months.
What happens when the mortgage holiday ends?
Again, if you need to extend your mortgage holiday after the initial three months, you can do so by a further six months as of 1st November. Once the term comes to an end, your mortgage lender will get in touch to see if you can make up the shortfall.
After the holiday ends, your lender will re-calculate what you owe on the mortgage and spread the deferred payments over your outstanding term or extend the mortgage length. If you still find yourself in financial difficulty, it’s essential that you are transparent with your lender and contact them straight away.
Taking a mortgage holiday
A mortgage holiday essentially gives you a bit of leeway if you find yourself facing financial difficulties. However, it’s not the only option, and you may find remortgaging could be a more sensible deal financially. Before going to your lender, it’s worth talking to a mortgage broker for free advice.
They can look at your current circumstances and advise on the best deal, be it a mortgage holiday with your lender, remortgaging with someone else or any other options on the table. In such strange times, it’s good to know that you have options that can ease the financial burden.
Speak to a mortgage advisor and learn more about mortgage holidays and the best option for you.