20 Jul 2018

Pros and Cons of a Mortgage Repayment Holiday

When it comes to your home loan, flexibility is everything. A repayment holiday can come in handy when your financial circumstances change, and you temporarily need to make adjustments to your mortgage repayments.

As with anything, there are pros and cons to a mortgage repayment holiday:

Advantages of mortgage repayment holidays

Potential reasons for a temporary reduced income / increased outgoings:

  • Maternity / Paternity leave
  • Childcare costs
  • Redundancy or career break

Whether your change in finances was planned or unforeseen, minimising the largest portion of your outgoings each month for a short time can help get you back on track when your financial circumstances change. A repayment holiday can be the perfect safety net when times are tough, so your finances don’t spiral out of control. Relax knowing that for the time being, your reduced income or increased outgoings won’t affect your mortgage so at least one thing will remain stable – your home!

Some lenders will allow a repayment holiday of up to 12 months and will work with you to determine which avenue is best – a complete suspension of pay or a reduced repayment plan.

Disadvantages of mortgage repayment holidays

Interest will continue to be added to your loan regardless of whether you are on a payment holiday or not, so by taking this option, you will end up paying more overall with the added interest. Your credit rating may also be affected.

Are you eligible for a mortgage repayment holiday?

Eligibility depends on your lender, the contract you agreed upon, and your financial circumstances. You often must have made extra repayments to your mortgage too which has built up credit, though some lenders may grant it regardless. Not all lenders will offer this service, and not all situations will qualify for the use of this service.

Discuss the possibilities with your lender

Speak to your lending manager today if you think a repayment holiday may work for you. It is also in the best interests of the lender to ensure your financial stability, so you don’t get to the point of defaulting on your loan.

Remember, this is a temporary solution and not a way to fix any financial problems. If you are unable to pay your mortgage because your household income has permanently reduced, this might not be suitable for you, and you’ll need to speak with your lender.

Other ways to deal with financial changes

You won’t be able to apply for a repayment holiday if you are in mortgage arrears, though by contacting your lender you should be able to discuss alternatives. There are other ways of dealing with a change in your finances, for the short and long term. These include:

  • Refinance to a home loan with a lower rate which will lower your repayments
  • Change your home loan to a fixed rate, for consistent payments
  • Work with one of our specialist team to budget your finances
  • Debt consolidation to minimise your overall repayments

For tips on how to deal with debt or a lower than usual income, read our blog on 20 ways to get out of debt. These can also help if you are preparing for some financial changes, such as becoming parents or a career break.

Mortgage House

At Mortgage House, we’re no strangers to the homeowner’s journey. It’s a long (but rewarding) one.

But don’t worry, we can help with that.

If you’re thinking of selling your home and are ready to make the next move buying or investing, you can contact us for information about the best options for you when it comes to your mortgage.

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