Mortgage payment holiday

Priya1978

Are there any consequences in taking a payment holiday? We are on a interest only mortgage and we have taken a holiday before for one month 3 years ago. If we take a holiday will we have to pay more back if we want to remortgage to another lender? Our current fixed rate deal ends in June 2010 and I will be looking to remortgage then.

Cannon_Fodder

Being on Interest Only you are not making any repayments that help reduce your outstanding balance or LTV. Do you have a repayment vehicle in place?

By taking a payment holiday, you will have the interest payment(s) added to your outstanding balance.

Future monthly payments will be calculated on this new balance, so you will be paying interest on the missed payment for the remainder of your mortgage term (i.e. not just until June 2010, but until the mortgage is paid off...)

On re-mortgaging, the amount you need to borrow will be that amount higher, and again influence your LTV, affecting which deals you can get.

What LTV were you on when you started your latest deal? If 90% or higher, you may find difficulty in re-mortgaging due to being in negative equity or close enough to it, that you have no "deposit" - there are mostly only 90% or lower deals, at the mo.

You may want to research your SVR, that you drop onto when your fixed deal ends, so you can see if it is affordable, as it might be your only choice. This might be a good thing, as some SVRs are low, compared to recent fixed rates, but that depends on how long the low Bank of England rate lasts.

If you are struggling financially, you might like to visit the Debt-free Wannabee and Mortgage-free Wanabee forums, to get ideas for economising etc...

jacqhale

Just wanted to say we took a mortgage holiday for a year while I was on maternity leave and in hindisght was the worst financial decision we ever made. Basically wrote off 5 years of over payments and capital repayments when the interest was added back to the loan. Now trying desperately to get the mortgage down with overpayments while rates are low.
If you really must I would advise as short a term as possible, but that's just me!

Good luck!

Peelerfart

For mortgage holiday read, authorised arrears .

If ever something was misleadingly used it's the word holiday here

opinions4u

Priya1978 wrote: »

Are there any consequences in taking a payment holiday? We are on a interest only mortgage and we have taken a holiday before for one month 3 years ago.

If you pay interest only then your monthly payment keeps your debt level. For example, if you owe £100,000 and pay £500 a month, your debt remains at £100,000.

If you take a 6 month payment holiday your debt will increase to £103,000 based on the example I've used (plus a bit more for interest charged on the increasing debt).

Your payment after that is usually increased to either repay the 'holiday' over the remaining term of your mortgage, or to cover the interest at a higher debt level.

If we take a holiday will we have to pay more back if we want to remortgage to another lender?

Yes it will. In some cases in can actually remove the choice to remortgage because lenders may consider your debt too high in relation to the value of your property.

A couple of questions:

- who is your lender?
- how mcuh do you owe?
- how much is your house worth?
- why are you on interest only?
- why do you need a payment holiday?

The answers to these can help you to get clearer help from the forum.

A payment holiday for the right reasons at the right time is a legitimate way to borrow money against your home. But you should see it as borrowing, over a long term, because that's exactly what it is.

There are a lot of circumstances where you shouldn't choose to pay 23 years interest for borrowing a relatively modest amount.

Hope that helps.

koexelek

Peelerfart wrote: »

For mortgage holiday read, authorised arrears .

If ever something was misleadingly used it's the word holiday here

Yes, it's only really a holiday if you have overpaid in the past, and are now funding the repayments from those overpayments