Fancy A Mortgage Payment Holiday?
Taking a mortgage payment holiday for a month or two sounds like a nice idea. But are there any fees attached? Are there any catches? And what does it mean for your repayments when you start to pay again?
Mortgage lenders often like to point out that they will allow you to take a ‘mortgage holiday’. It sounds good, doesn’t? It sounds like you can simply stop paying your mortgage while you, well – go on holiday, for example! But is a mortgage holiday as simple as that?
What if you really were out of the country for a couple of months, or times were so tight that you really could do with not making your mortgage repayments for a month or two?
One example lender, Northern Rock, say that the conditions of the payment holiday are clearly set out in their Key Facts Illustration given to every borrower who applies for a mortgage.
Northern Rock’s payment holiday works like this: when you have made payments for nine consecutive months you can apply for a one month payment holiday, and you can make one such application in every 12 month period. In addition, you can accumulate holidays (up to three months) by continuing to pay for three years. They will even stretch to six months in certain circumstances. All such holidays must be agreed by Northern Rock.
However, you must bear in mind that interest will continue to tot up during your holiday period. This will mean that, as you are making no payments, your outstanding balance will increase during your holiday.
Northern Rock do not automatically re-calculate mortgage repayments for the returning customer – though this can be done if the borrower wishes. Usually, however, Northern Rock will wait until there is further activity on the account – such as a rate change – and then re-calculate the new payments, taking into account the accrued interest that wasn’t paid during the holiday.
There is no additional payment (i.e. there is no fee) for taking the payment holiday.
Mortgage holidays can suit different people at various times, depending on their circumstances, but they should always remember that they will have to pay the money back eventually.
