Is a mortgage holiday worth it in the long run?

Mortgage payments are typically the highest priority debt for householders, as falling behind can lead to repossession by the lender. To combat the severe effect of coronavirus on jobs and livelihoods, the government announced mortgage payment holidays as part of a broader support package in 2020.

Up until 31st March 2021, you can still apply for a payment break of up to six months if your income has been negatively affected by coronavirus. Maybe you’ve lost your job or been forced to reduce your hours – an extremely worrying situation when you’re in mortgage debt.

How do mortgage holidays work?

When you take a mortgage holiday it means you’re deferring the payments until a later date. Under the current conditions, you can apply for a payment break on your mortgage for up to six months.

Your lender will explain how the missed repayments can be made – this might be by increasing monthly payments for a fixed period, for example, or adding the total sum missed to the end of your mortgage.

If your remaining mortgage term is lengthy, the additional amounts may have less impact on your finances in the future. Should the remaining time of your mortgage be shorter, however, the repayments could be significantly higher until the loan has been repaid.

Also bear in mind that interest on the missed payments continues to accrue during a mortgage holiday. Sometimes lenders also offer the ability to pay only capital or interest payments for a period, to relieve the financial pressure on customers.

Is it worth applying for a mortgage payment break?

In some cases a mortgage holiday will be essential to prevent the loss of a home. It offers valuable support when finances are so affected that perhaps bankruptcy is the only end result, or the damaging effects of debt on a homeowner’s mental/physical health are too much.

If you can meet your mortgage repayments, however, it’s advisable to do so even if other creditors such as credit card or store card companies are given a lower priority. Scotland offers various debt remedies where unsecured debts have become unmanageable.

The government has stated that taking a mortgage payment holiday will not affect credit ratings, but in reality, it could affect your ability to borrow in the future. Deferring payments does have implications for your financial stability in later months as you need to make them at some point, so in the long run it may not make sense to take a mortgage holiday. 

How to decide if a mortgage holiday is worth it

If you’re unsure whether to apply for a mortgage holiday, it’s advisable to seek professional debt help – perhaps from a debt charity or licensed insolvency practitioners (IPs). Scotland Debt Solutions offers free same-day meetings and can quickly assess your best options.

In reality, a mortgage holiday only defers payments for up to six months - it’s intended to provide a breathing space for homeowners in severe financial difficulty. It will always cost more in the long run, but in some cases is vital to prevent repossession whilst easing immediate financial pressures.

The debt solutions available in Scotland, such as the Debt Arrangement Scheme (DAS) or Scottish Trust Deed, could help you repay your other debts, so releasing money to keep up with mortgage repayments.

For more information on whether a mortgage holiday may be worth it for you in the long-term, please call our team of licensed insolvency practitioners. Scotland Debt Solutions specialises in helping Scottish residents deal with debt, and can provide the reliable guidance you need.