Should I consider a mortgage holiday?

Life has a habit of throwing the unexpected at us. And in those times you may be thinking about a mortgage holiday.

In recent times, there have been occasions when people needed a mortgage holiday. For example, lenders were encouraged to allow more of them during the Covid pandemic.

If you’re wondering, ‘Should I consider a mortgage holiday?’ at the moment then here’s all you need to know. And we’ll also offer our thoughts.

What is a mortgage holiday?

You might have arranged your mortgage a couple of years ago and it was perfect at the time. But with cost of living crisis due to rising bills and rising interest rates, reports show that people are now being careful with their money.

The knock-on effect, for example, could be that those working in certain sectors may find their hours reduced. As a result, their changing financial situation and circumstances could mean their mortgage product is no longer right.

Circumstances can include redundancy as can other short-term financial changes, such as maternity leave. It could mean that taking a breather from mortgage payments will ease the pressure.

Will my lender allow a mortgage holiday?

When it comes to your mortgage, it all depends on your lender and product. As a mortgage holiday means you’ll increase what you owe to your lender. That means you will have to prove that you’re a low-risk borrower and you’re reliable when making payments.

Your lender will review your history of payments and if you have made overpayments it will go in your favour. Meanwhile, if you are in arrears – which means you have missed mortgage payments – it’s unlikely you will be able to apply for a mortgage holiday.

As ever, it’s all down to individual lenders as they have different criteria depending on their approach and their products.

If you’ve used a mortgage broker, such as The Mortgage Dog, you should talk to your adviser.

You must be honest with your lender and broker when requesting a mortgage holiday. If you’re not, you may be given the wrong advice which could be costly in the long run.

The pros

• The following reasons could mean a mortgage holiday is an advantage.
• Get some financial relief. If you’re facing unexpected financial problems it will help you focus on other expenses.
• It’s flexible. The flexibility you’ll gain from the break will help you manage your finances and recover from the financial pressure.
• Less stress. Knowing you have that big monthly bill is stressful, so other pressures add to that problem. Taking a break can reduce that anxiety.

The cons

• While it might all sound a positive decision, a mortgage holiday has its drawbacks.
• Higher repayments. During the mortgage holiday the loan will accrue interest, which is added to your outstanding balance. That is likely to mean higher monthly repayments once the holiday ends.
• Longer mortgage term. To accommodate your payment break, the time in which you need to pay your mortgage will increase.
• Credit score could be impacted. Depending on how your lender reports holidays, your credit score could be impacted. You should discuss this with your lender before taking a holiday so you can make an informed decision.

So, should I consider a mortgage holiday?

Everyone has different circumstances and a mortgage holiday may or may not be right for you. Get advice first before applying. As we’ve said, if you’ve been in arrears at any time, your lender is less likely to agree to a holiday.

Contact your lender or mortgage broker for advice. For more details, contact the experienced Mortgage Dog team.