Everything you need to know about mortgage holidays or deferrals

09/06/2020
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If you’re struggling with debt because of unexpected temporary hardship, a mortgage deferral or holiday might give you the relief you need to get back in the saddle. But before you take the plunge, it’s important to get the full story.

 

WHAT IS A MORTGAGE DEFERRAL OR HOLIDAY?

A mortgage holiday or deferral is a delay on the payments to your home loan, usually for 6 months.

While you have a deferral, you won’t need to make your regular repayments for the duration of the term. You won’t be penalised or have default interest on your loan, nor will it count as a missed repayment on your credit score.

You are still charged interest on the total amount owing on your loan as usual.  It’s added to your total loan amount to be paid later. This means your balance will increase and once repayments start again, they might be higher than before.

 

WHY WOULD I GET A MORTGAGE DEFERRAL?

People who have had ‘life happen’ and lost a job or come up against a sudden big expense can struggle to meet their loan obligations.

In these cases, they can get in touch with their lender and ask about the possibility of a mortgage deferral.

After the impact of COVID-19, deferrals became quite common, sometimes being called ‘holidays’ as well. Some lenders (Avanti included) also offered the same options for non-mortgage loans like personal loans or car loans.

They provide immediate relief from what is often a major expense during a stressful time. Once people are back on their feet, they are able to start making those repayments again without any penalisation.

 

PROS AND CONS OF A MORTGAGE HOLIDAY/DEFERRAL

 

Pros

Cons

Immediate relief to payments.

 

Your balance owing will increase and your repayments will be higher when they restart

Don’t get penalised if you’re struggling to make repayments.

They only last for a few months.

Won’t damage your credit score if you aren’t in arrears.

They aren’t available to everyone and you have to fulfill certain requirements.

 

WHAT ARE THE ALTERNATIVES TO A MORTGAGE DEFERRAL?

If you don’t like the sound of increasing your balance, you may have the option of switching to interest-only repayments instead. This means you’ll still have repayments, but they’ll be lower, and the total you owe won’t increase.

Speak with your lender to check your options.

 

SUMMARY

  • Mortgage deferrals can give you temporary relief if you can’t make your repayments.
  • The interest charged stays the same and increases the total balance owing on your loan.
  • Repayments can be higher when they restart again.

For more information about mortgage deferrals and your options if you need one, get in touch with the Avanti Finance team on 0800 808 003.

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