Mortgage Payment Holidays.

by Mark Johnston

Mortgage payment holidays.

A recent survey by The Times newspaper showed that more and more people are now seeking ‘mortgage payment holidays’ in order for them to keep up with the growing financial pressures of the credit crunch.

Also recent research has shown that more than 2 million UK home owners are considering taking mortgage payment holidays.

Most of today’s mortgages come with a feature known as a mortgage payment holiday, but is it as attractive as it sounds and in the current climate is it really wide to take these payment holidays?

A mortgage payment holiday is a break from making the regular mortgage payment, it is a short term solution designed to free up funds.

Basically, during months when borrowers know that their money is going to be tight they can take some of the pressure off by deferring their mortgage payment and allocating the money elsewhere.

These payment holidays are only ever a temporary arrangement and the length of the break varies from lender to lender. Holidays range from 12 months to a maximum of 6 months over the life of the mortgage.

In most cases borrower must be up to date with their payments, although a few lender may allow a payment holiday if the borrower is no more then one payment in arrears.

However, there is no such thing as a free lunch! The term ‘payment holiday’ makes it sound like you are getting something for nothing. It sounds like the mortgage lender has decided to let you off completely from paying your mortgage for a month or two.

This is most definitely not the case. Usually when a payment holiday is used the interest still continues to be added to outstanding mortgage amount. Therefore once the payment holiday is over the monthly mortgage payment will have increased by a few pounds!

This does not sound that bad and if a borrower only takes one holiday over the entire term of a 25 year mortgage and stays with the same lender through out it is unlikely to be a big issue.

The fact is that most people move home or re-mortgage a few times in their lifetime and therefore it is important that they pay off as much of the capital on their outstanding mortgage as possible in order for them to gain a good deal in the future.

Basically if borrowers keep taking payment holidays, especially in the early years of a mortgage then they will not reduce what’s owed on the mortgage by very much and this could make things difficult when they decided to re-mortgage or move home.

Some experts have also suggested that it may also be wise to verify with individual lenders how a payment holiday affects credit histories.

It seems that irrespective of the mortgage company’s agreement to a repayment holiday, it is very likely that the borrowers credit history will reflect an arrear and this will impact on obtaining alternative credit elsewhere in the future, until the arrears have been recovered in full.

 

 

 



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