Should I take a mortgage holiday?

Mortgage providers are now offering temporary "holidays" from making payments for anyone whose income has been affected by the coronavirus pandemic.

Should you take a break from your mortgage? It might sound like a no-brainer, but some people could be better off not taking this particular holiday. Let's dive into why.

How it works

A mortgage payment holiday is an agreement with your lender. It gives you a bit of breathing space by letting you stop or reduce your payments for up to three months.

Your credit score won't be affected by taking a mortgage holiday and you won't have to pay any extra fees or charges.

Your mortgage will continue to accrue interest throughout, making your total mortgage debt higher overall. However, this is added to the total - you won't have to pay it back immediately.

After the payment holiday ends, you might have pay more each month to make up the lost repayments. Or, your mortgage term might be extended with the missed payments added on.

Is it right for you?

If you're facing a struggle to pay your mortgage, a payment holiday could be a good short term solution.

However, it's important to remember that your debt will continue to increase while you're not paying. Several lenders have spoken out publicly about the risk to customers of taking a mortgage holiday that they don't really need.

If you're worried about your finances, there are lots of options you can consider before asking for a payment holiday.

Your first step should be to check what cash you have available to fall back on. It's cheaper in the long run to use your savings to keep making payments, if you can. This is what emergency savings are for.

You can also speak to your lender about what other help they can offer you, such as reduced monthly payments or an interest-only arrangement.

If you're on a variable or tracker rate mortgage, remember that your payments will be cheaper now thanks to the lower base rate. You'll save around £40 per month, per £100,000 of your mortgage balance.

How to apply

If you do want a mortgage holiday, you should get in touch with your lender and agree it with them. You can't just cancel your Direct Debit.

Some lenders have warned that payment holidays won't take effect until the month after you apply. So if you think you need one, it's better to apply sooner rather than later.

Many mortgage providers are overwhelmed with calls at the moment, so apply online if you can.

You won't need to prove to your lender that you're struggling. However, they'll do a quick check to make sure a payment holiday won't make your mortgage unaffordable later on.

To be eligible you need to be up to date with your payments. Anyone who's already behind will probably be offered alternative options.

Any help for renters?

It isn't just homeowners who have bills to pay. The government has announced some measures to help tenants who are worried about making rent during the crisis.

Landlords will now have to serve three months' notice if they want you to move out, instead of  two.

The government has also said that if renters are struggling to pay, they should speak to their landlord about putting a rent payment scheme in place.

Questions?

If you're not sure what to do, either with your mortgage or your finances generally, there are people out there to speak to. Turn to your lender as your first port of call - they will be able to suggest measures to help you cope.

Our team is also on hand for any questions to do with your plan. Get in touch at support@multiply.ai and we'll do our best to help.