Despite the general lack of seasonal festivities, the Christmas period can still be financially challenging. That being so, you may be thinking about applying for a mortgage holiday in the new year. If so, here’s a quick guide to what you need to know.
Relief is still available for people impacted by COVID19
At present, people impacted by COVID19 have until 31st March 2021 to apply for a self-certified mortgage holiday. What this basically means is that you will automatically be granted a payment holiday for up to three months without the need to go through a formal approval process.
You can then extend this up to a total of 6 months. All COVID19-related payment holidays must, however, be finished by 31st July 2021. This means that if you think you might need or want to take the full 6 months, you’ll need to have everything signed off by the end of January.
The negatives of mortgage holidays
There are two potential negatives about taking a mortgage holiday. Firstly, the holiday gives you a break from the payments. It does not, however, give you a break from the interest. How much of a negative that will be will depend partly on your mortgage deal and partly on the size of your balance.
If you have a large balance on your mortgage, then you might want to consider organizing a partial payment holiday. This would give you some relief from the payments while limiting the amount of interest which accrued during the holiday. Alternatively, you could ask your lender if you could make payments voluntarily if your circumstances allow.
The second negative is that a payment holiday can impact your credit record. Technically, a COVID19-related holiday is not reported on your payment record. The problem is that in the real world, it’s pretty easy for lenders to figure out that you’ve had a payment holiday. If you’re making regular payments, your balance is going down accordingly. If you’re on a payment holiday, it isn’t.
Again, the real-world impact of this is likely to depend on your circumstances. If you’re happy to stay with the same lender for the immediate future, then you may be prepared to take the hit. If, however, you’re looking to change lenders, then you may be better overall to make the payments, even if it’s a struggle.
After the mortgage holiday ends
After the mortgage holiday ends you either resume payments as normal or go onto tailored support measures. These will be set up in partnership with your lender. Be aware that, like payment holidays, these support measures may come at a price. For example, if your lender extends your mortgage term, you may pay less each month but end up paying more overall.
Unlike COVID19 payment holidays, tailored support measures will be reported on your credit record. Again, the impact they have will depend on your circumstances. For example, if you extend your mortgage term, you will be able to maintain a track record of regular payments. If, however, you arrange another deferral, you will be sending a very clear message to a lender.
If you switch to an interest-only mortgage, then you’ll need to think very seriously about how you’ll repay the capital. Unless you have some other repayment vehicle in place, then you will need to give up ownership of your home. This may not mean that you have to leave it. You might, for example, be able to use equity release to pay off the balance.
Selling your home
If it’s a continual struggle to pay your mortgage, then your best option may be to sell your home. This can be a hard decision to take. In fact, you may want to get professional advice before you take it. Keep in mind, however, that there are many reasons why selling your home on your own terms is better than having it repossessed.
Your property may be repossessed if you do not keep up repayments on your mortgage.