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Some types of mortgage – particularly those that lenders describe as “flexible” – allow you to take periodic payment holidays. This is a lender-approved period (usually between one and six months) during which you don’t have to make your mortgage payments. Payment holidays can be an ideal solution if money is tight or you have sudden unexpected expenditure, but it’s important to understand the pros and cons before you proceed.
How to Take a Payment Holiday
The first thing to consider is that for however many months you don’t make mortgage payments, interest is still being charged, effectively increasing your mortgage debt. Lenders usually offer one of two ways to account for this – your payments may be increased to repay the higher debt over the remaining mortgage term, or less commonly the mortgage term may be extended (for example, if you take a three-month payment holiday, your mortgage term will be recalculated to end three months later than was originally agreed – although there may be a slight payment increase to account for the extra interest charged).
Some flexible mortgages may only allow payment holidays if you have previously overpaid, and in all cases the payment break is subject to the approval of the lender. Your mortgage company generally must be satisfied with the reason for the payment break and your previous payment history on the mortgage. Many lenders will only allow a payment holiday provided your mortgage loan-to-value ratio remains below a certain limit (e.g. 80% of the property value).
Payment holidays advice on new mortgages can be obtained from Just Mortgage Brokers – we have years of experience in all aspects of mortgages. Ask our mortgage experts to be sure of receiving professional, impartial advice. If you need to check the eligibility of your existing mortgage for payment holidays, firstly contact your current lender.