A mortgage payment holiday is a fad now on the market. A majority of lenders are abiding by the policy and looking after their british borrowers during the need. Yet, there is much you need to know about so that you get surprises at the month-end.
Mortgage payment holidays are an agreement between you and your lender, including banks to put off your monthly mortgage payments for a limited period, generally up to 3 months.
Note that the capital balance will not go down as long as you are on a mortgage payment holiday. It means you will continue to attract the interest on the mortgage, making the total cost slightly up.
When the holiday period expires, monthly repayments will be recalculated or the mortgage term will be extended. The new repayment will be slightly higher. However, not all lenders allow for the extension of the mortgage length.
Mortgage payment holidays are available for both residential mortgages and buy-to-let mortgages.
Now the question is when you can apply for mortgage payment holidays.
Mortgage payment holidays aim to help borrowers affected by a coronavirus (COVID 19). The government has confirmed that it is valid for three months to help you financially.
Eligibility for a mortgage payment holiday
Having a residential or buy-to-let mortgage is not enough to be eligible for a mortgage payment holiday. You need to meet the following condition:
- You must have been up-to-date with your repayments. If you have made any default earlier for any reason other than COVID 19 infection, you cannot apply for this scheme.
- If your mortgage is already in arrears, you should talk to your lender for alternatives.
- The lender will not assess your incomings and outgoings. You need to tell them you are struggling to keep up with repayments due to COVID 19. However, if you go for a full assessment, you will be up on forbearance options more suitable to your financial condition.
What is the alternative if mortgage are in arrears?
A mortgage payment holiday is generally applicable for borrowers who have been making repayments on time. If you want to avail the benefits of the scheme as you have got infected with COVID directly or indirectly, you should talk to your lender as soon as possible.
Though you will not be able to claim this policy, your lender can come into an agreement that will allow you to pay your mortgage at a reduced rate. If you have consulted a fee free mortgage broker in Edinburgh at the time of taking out a mortgage, contact them. They may help you have better rates as per your current financial situation. Some lenders may put you on interest-only mode for a specified period.
How to apply for a mortgage payment holiday
To apply for a mortgage holiday, you need to go through the following steps:
- You need to contact the lender and tell them you are affected by COVID 19.
- The lender will accept your details and not ask you for any evidence.
- You will be up on the interest accrued to your mortgage.
Cons of a mortgage payment holiday
One of the significant benefits of this facility is you can have temporary relief from this burden, but it has some implications too.
- You are racking up interest even though you do not have to make the repayment.
- After the end of the holiday, your repayment will be higher than they were before the holiday.
- It can affect your credit score.
You can get more details about the mortgage payment holiday by contacting your lender.