Mortgage Payment Holiday

Rhealea

We can take 12 months payment holiday on our mortgage and was thinking of doing this when I go on Maternity Leave next year.

Does anyone know how this will effect our mortgage in the long run? We currently have 18 years left.

Thanks

dunstonh

Perhaps its not really best considering it a holiday. It is really authorised arrears. You end up paying more interest and therefore more in the long run.

Rhealea

How does a "holiday" work?

poppy10_2

You contact your bank and get the agreement for a mortgage holiday. Normally this will depend on you having a good payment history so far (no/very few missed or late payments) and having paid off some of the equity in the property.

The bank then allows you to stop making mortgage payments for a certain period of time. As Dunston points out, it's really just authorized arrears - the missed payments are retained on your mortgage and the interest adds up all the while.

Rhealea

So do our payments increase? Or the term of the mortgage?

dunstonh

Your payments will increase usually. You will basically have one year less to repay the mortgage because you have taken a year off and your mortgage would have increased as the interest is added to the mortgage. It can actually end up a very expensive option if done long term like you are suggesting.

For a very rough guide, go to any mortgage providers website with a mortgage calculator (Lloyds have one) and do a calculation of your current mortage and remaining term. That will give you a monthly figure (it wont match yours but its not the figure that is important). Note the figure. Then reduce the mortgage term by 1 year on the calculator and add the total of your 12 months payments that you would have paid to the mortgage balance. Then recalculate it. The new monthly payment will be higher.

You can then roughly apply the difference in the two figures as to how much your mortgage payment will be when you restart. its not an accurate calculation but it will give you a rough idea as to whether it is worth it or not.

I have a gut feeling as well that lenders may start asking soon if you have taken a mortgage holiday in the last x number of years as part of their application. It is only a gut feeling and no basis of fact. However, there has been a lot of coverage suggesting that mortgage holidays may end up being used to try and hide a weakness in the ability to afford the repayments and mortgage books (that is what the lenders collective customer borrowing is known as) with higher numbers of mortgage holidays are likely to be viewed as higher risk than those without. With future lending likely to be graded on quality, things like payment holidays are likely to be considered a negative thing if you have had one.

That isnt currently the case but just an opinion of what is coming.

petalbrain

Could you tell me if it is possible to get a payment holiday on an interest only mortgage?
And if so how does it affect my payments?

maovs

The worrying bit really is that the intersest that you cease to pay during say 6 months is added to the capital that you owe! So, It is not only the case of having to pay the mortgage in 6 months less time, but also to have to pay more capital! My humble knowledge in economics has always told me that to add interest to the capital of a loan is not too beneficial, as you end up paying interest charged on your interest!!

Peelerfart

The whole term "payment holiday" is very misleading .

These should only be used where absolutely necessary IMHO.....