Struggling with mortgage repayments? Don’t panic. You have options, including a mortgage holiday.
Here’s how to apply for a mortgage holiday, and what to expect.
What is a mortgage holiday?
Before we get into any detail, let’s be clear on what a mortgage holiday actually is.
Think of a mortgage holiday like a payment break. For an agreed period – usually a few months – you won’t have to pay your mortgage.
Mortgage holidays give you breathing space. They let you deal with temporary financial setbacks – the key word here being ‘temporary’. You’ll still need to pay the money back, and you’ll need to remember there’s interest, too. Essentially, you could end up owing more than you did before the mortgage holiday.
In other words, mortgage holidays can be a good idea, but they’re not for everyone.
Is a mortgage holiday right for me?
So, how do you know if a payment holiday is right for you? Well, it depends on a few factors, including what type of mortgage you have. Let’s take a look.
- If you’re already in mortgage arrears, you might still qualify for a mortgage holiday. But you should explore other options first, because you might need extra support.
- Nearly paid off your mortgage? It could cost you more to clear off the final balance if you take a holiday now.
- Your future direct debit payments will probably increase once you start paying again. This is to ensure you pay your mortgage back on time.
Will a mortgage holiday affect my credit score?
Again, it depends. The rules vary depending on whether your need for a mortgage holiday is related to the coronavirus pandemic or not.
Related to coronavirus
If you need a mortgage holiday due to the impact of the coronavirus pandemic, it won’t go on your credit report. In other words, it probably won’t affect your overall credit score.
You’ll need to apply for a mortgage holiday by the UK government deadline of 31 October 2020 to fall within these guidelines.
Not related to coronavirus
If you’re applying for a mortgage holiday for any reason other than coronavirus, it might go on your credit file. So, it could reduce your credit score. Your lender can give you more details about this.
Remember, though, that there’s one thing that always damages your credit score, and that’s missed repayments. If you think you won’t be able to make a mortgage payment, tell your lender first and then explore your options.
How to apply for a mortgage holiday
Although the process varies by lender, the steps are very similar all round. Here’s what you should do.
- Contact your bank or lender. You can usually do this online. You’ll need your account number handy.
- Confirm how long you want the holiday for. You can apply for a holiday of up to three months.
- Some lenders need you to explain what’s happened as part of your application. This helps them decide whether you need a mortgage holiday or not.
- Confirm when you want the holiday to start.
Lenders aim to process applications within a few days, but it can take a bit longer when it’s busy. Ideally, you should apply at least 10 days before your next payment date to ensure your application is processed on time.
Can I extend my mortgage holiday?
Maybe. According to the Financial Conduct Authority (FCA), it all depends on your circumstances.
Typically, you’ll get a call or a letter from the lender just before the holiday ends. They’ll ask if:
- Your circumstances have changed
- You can start paying your mortgage again
If you can’t pay your mortgage yet, they’ll give you some options which might include:
- Paying less money for a few months
- A further mortgage holiday
But what about how to apply for a mortgage holiday cancellation? It’s easy. Just inform your lender you don’t need it anymore.
What if a mortgage holiday isn’t right for me?
If a mortgage holiday won’t work for you, don’t worry. It’s not the only option. Here are some other ways to stay on top of your mortgage payments. You could assk your lender if you can:
- Reduce your monthly repayments by extending your mortgage term.
- Remortgage or switch to an interest-only mortgage.
- Arrange to make partial payments rather than taking a full payment break.
Remember, though, that all of these choices have financial consequences. You should always get independent financial advice before making a decision about your mortgage.
Hopefully, it’s now clear how to apply for a mortgage holiday, and what to do when the payment break ends. The most important takeaway, however, is this: if you’re struggling to pay your mortgage, or you have money worries, contact your lenders as soon as possible.
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