Mortgage Payment Holiday

bapper74

Hi all

Hope you can help.

Mrs B and I are thinking of taking advantage of a mortgage payment holiday that is offered as part of our mortgage with the Halifax in order to clear other debts from our Wedding earlier this year.

We're coming towards the end of a fixed rate mortgage taken out in July 2006 with reversion to the Halifax SVR (currently 3.5%) beginning in August 2011.

We'd be interested on opinions on whether people think its a good idea to take a holiday leading up to the end of the fixed rate (a whopping 6.54% - best deal we could get at the near height of the market for the purchase of a new build house).

The payment holiday we can take is for a maximum of 6 months so the idea was that if we were eligible (approx 86% LTV with no missed payments on a repayment mortgage) then we would be looking to take a 6 month holiday beginning in February 2011 so that the 6 months took us up to the point at which we revert to the Halifax SVR. The idea being that as the SVR is that much lower than we have been paying, we could be looking at making a saving of circa £400-500 per month, the interest we would be accruing over the life of the 6 month holiday could be paid back relatively quickly by reusing the extra money from the reversion to SVR but plus we would have essentially been able to pay off credit cards and personal loan.

Obviously any change in interest rates over the next 6 to 12 months would need to be watched pretty closely but we've been paying pretty heavily over the odds for recent times and are still reasonably confident that we can meet repayments even if we have to remortgage at some point in the next 12 months after the fixed rate period ends in August 2011.

Hope this is reasonably clear. We'd be really interested in opinions and thank you so much for your time in advance. Oh and a very happy New Year to you all of course!!!

Thanks
:beer:
JB

dunstonh

We'd be interested on opinions on whether people think its a good idea to take a holiday leading up to the end of the fixed rate (a whopping 6.54% - best deal we could get at the near height of the market for the purchase of a new build house).

6.54% is not whopping. Its below the long term average. It just looks higher based on current rates. Just as it would look lower if interest rates were back at 15% as there were during the 90s.

Mortgage arrears, whether authorised or not, should be considered in extreme cases. Its not something you should do an a whim. If its cheaper to clear the more expensive debt at the expense of taking on cheaper debt (as that is all you are doing. you are not clearing debt - you are shifting it around) then it can be a valid option. However, you need to be aware that short term debt will usually be cleared quickly (over 1-7 years). Whereas the mortgage debt is far longer. So, shifting it could be more expensive in the long run but cheaper in the short term.

If you plan to remortgage next year then going into authorised arrears for 6 months could damage your applications with other lenders.

opinions4u

If you're at 86% LTV and planning to remortgage, increasing your debt by borrowing on your mortgage (which is what a payment holiday is) will leave you with no decent remortgage deals available.

Don't do it.

jamesd

Have you considered balance transfers to 0% credit cards instead? A typical fee of 3% then fifteen to twelve months of no interest to pay, just capital minimum payments. Have a look at the stoozing.com 0% card table and you can pick cards based on length of deal and lowest minimum payment amount. A lower repayment reduces the effective interest rate of the 3% fee because you have the money borrowed for longer.

Use of 0% for purchase cards can build up a balance at 0% with no up front fee. That can be cheaper if your current interest rates for cards are low but if they are typical it's likely to be cheaper to do a balance transfer to eliminate the interest more quickly. A combination of the two is often best.

What is the penalty for remortgaging now? It may be cheaper to pay the penalty and switch immediately.

bapper74

Thanks guys

Advice much appreciated. Think we'll continue with the plan to revert to the SVR or at least keep an eye on the BoE base rate and see where we're at in July.

Cheers again.