When times are tough, many of us look to find ways of saving cash so that we can keep our heads above the water. One way to do this is to apply for a mortgage holiday so that you can increase your cash flow without the fear of losing your home. However, before you proceed with this money-saving step, it is vital that you are aware of both the pros and the cons – we've shared some here for you!
What’s Great About Mortgage Payment Holidays
Whilst the pros of a mortgage payment holiday may seem obvious, it is well worth considering what you are trying to achieve by taking one:
- Your Financial Pressure Will Be Reduced – if you face a short-term financial loss, then a mortgage payment holiday may be perfect for you as it will give
- you the reduction you need until your income increases again. You Will Have Breathing Space to Make a Plan – a mortgage payment holiday can also give you the time you need to make a longer-term plan without having your finances negatively affected.
What’s Concerning About Mortgage Payment Holidays
Despite the obvious pros, there are several cons to taking a mortgage payment holiday. Being aware of these cons will help you make the right financial decision for your circumstances:
- Holidays Mean Higher Repayments – taking a payment holiday means that your outstanding balance will be higher at the end of the break than when you started, meaning higher repayments each month to cover the break.
- Payment Holidays Can Affect Your Credit Rating – even if you have an excellent credit rating, a payment holiday will have a negative impact on your credit score. It will be reported on your credit file, making future credit much harder to obtain.
- Payment Holidays May Not Solve the Problem – if your financial problems are not short term, then a mortgage payment holiday may not solve the problem but delay it instead. If you are facing a serious financial problem, speaking to a financial advisor or debt charity is the best step before agreeing to any repayment holidays. The good news is that debt charities provide free advice and will help you resolve any issues you are facing.
- Your Mortgage Interest Will Keep Accruing – even when you have agreed to a repayment holiday, the interest on your mortgage will continue to grow on the remaining balance.
Making the Right Choice for You
Ultimately, if you are in a position where you need to solve some of your financial concerns urgently,, then a mortgage payment holiday may be the only solution. If this is true for you, then it is important that you make yourself aware of the implications and only take the absolute minimum break needed to get yourself back on track.