Does Overpaying a Mortgage Help You Get A Mortgage Holiday?

mrobsessed

Hi,

I'm facing redundancy so looking at options to protect my mortgage for possible hard times ahead. One Idea I've had is to use some of my redundnancy money to 'max out' my mortgage overpayment allowance for the year. As well as the obvious benefit of reducing my debt, can any overpayment be used as a replacement for any missed payments later or be used as a bargaining chip?

For example if my total monthly mortgage payments for the year are £10,000 and I overpay £5,000 at the start of the year, but then struggle to pay my monthly mortgage two-thirds of the way through the year, will the overpayment be taken into consideration by the mortgage company, or considered irrelevant? Would it help me negotiate a mortgage holiday under conditions of hardship?

Any advice would be appreciated!
MrO

Thrugelmir

You'd be better advised having an emergency fund of say 6 months money put by. Before overpaying. As a mortgage holiday if granted. May well be recorded as authorised arrears on your credit file.

kingstreet

You can normally miss an equivalent number of months's payments if you overpay first. Check terms with lender beforehand.

dimbo61

I have been overpaying my mortgage for a couple of years and have now built up over one years mortgage payments.
When I needed a mortgage holiday to pay for works elsewhere I simply rang my lenders and asked for a 3 months break.
Now if you have a partner/spouse and can not claim benefits I would overpay every penny allowed as you are paying off your mortgage debt!! which is more than likely at a higher rate than savings AFTER TAX !!
By doing this if you are struggling to pay the mortgage you can have a Mortgage Holiday ( please check with your lender ring the mortgage centre not the local office).
Hope you find a new job soon.
Better to overpay the mortgage and have less than £16K in savings ( Think benefits)

getmore4less

Keep the money in cash, that way it is your choice what to spend it on when the time comes not be dependant on the mortgage company letting you default because your money hs run out.

mrobsessed

kingstreet wrote: »

You can normally miss an equivalent number of months's payments if you overpay first. Check terms with lender beforehand.

My Lender (Natwest) specifically states that they no not allow mortgage holidays, so I'm not sure they'd allow this.

I can see that mortgage lenders would be unimpressed by overpaying because they make their money from interest paid over the term of the loan (and therefore the longer the better for them), but overpaying reduces the term as the loan is paid off sooner.

Also, If I overpayed the equivalent of a years mortgage payments in a lump sum and then ran out of cash 6 months later, surely it is more in their interest to say that I am defaulting of the mortgage terms and repossess my home (with substantial positive equity) rather than letting me off because I've overpayed earlier.

mrobsessed

dimbo61 wrote: »

When I needed a mortgage holiday to pay for works elsewhere I simply rang my lenders and asked for a 3 months break.

Yes, but while they may allow this, they may also be adding the missed monthly payment onto the balance of your debt (on which you will pay interest for the full remainder of the term), which is standard practice for the misnamed mortgage 'holidays'.

Are you saying that the overpayment has given you a genuine mortgage holiday, with no extra debt being added to your balance?

kingstreet

That's why I suggested checking with the lender first, you are unfortunately with a lender which doesn't follow the general trend.

I can only generalise on here about what normally happens, particularly when the name of the lender isn't mentioned.

For example, Nationwide's KFI says;-

The lender will allow you to pay reduced monthly payments at any time up to the value of any credit balance you have previously built up, provided all of your accounts are up to date. You must obtain the lenders agreement to this prior to reducing your monthly payments.

This forum, while useful and accurate, cannot be a substitute for the borrower asking the relevant questions of his/her own lender.

dimbo61

Most if not all mortgages add interest daily so if you do not make a mortgage payment the interest is added every day so builds up.
After our mortgage holiday we paid a small amount extra to repay the extra interest.