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Mortgage payment holidays uncovered

While to most of us keeping a roof over our head is our number one priority, there are times when keeping up with mortgage payments can seem extremely difficult. There are many reasons why mortgage payments could be more difficult at certain times, including irregular pay, unusual monthly costs, or temporary loss of income.

Some mortgage lenders allow you to take a break from your payments if your circumstances suddenly change, and this is known as a ‘mortgage payment holiday’.

Taking a holiday from your mortgage repayments certainly gives you room to breathe, and will also allow you to recuperate the funds needed to get back on track. It is far better to take time away from paying the mortgage at the discretion of the lender, than to default on payments, as this can have a huge impact on future payments and the size of your overall mortgage.

However, although it is better to take a holiday, there are still implications that you must bear. A startling 1.4 million mortgage holders believe interest is frozen during payment holidays, and 6% of them think it's completely free, with no penalties administered. This, however, is not the reality.

The average holiday people take from their mortgage is about four months. During that time the interest is insidiously gathering pace in the background. At the end of the four months, the average monthly repayments will increase, but not only that, the overall outstanding amount of the mortgage rises by significantly. The amounts that you will end up paying on top each month, as well as the overall outstanding amount, will be wholly dependent on the individual mortgage.

The Homeowner Mortgage Support Scheme
The Homeowner Mortgage Support Scheme offered those who had suffered a recent loss of income, but were expected to recover financially at a later date, the chance to find new employment and take control of their mortgage payments once more.

The scheme was voluntary, and saw mortgage lenders take more control over premiums if a borrower was unable to sustain payments, by temporarily reducing the monthly interest. The Government then guaranteed the lender against a proportion of any loss incurred on the deferred interest payments, in case the borrower defaulted. In order to qualify, borrowers will had to:

• Have suffered a loss of income from employment that is not considered long-term, but makes it impossible to sustain full mortgage payments in the short-term
• Have been making some form of regular payment and have maintained contact with the lender
• Have a mortgage worth no more than £400,000
• Have savings of below £16,000
• Have only one permanent residence
• Not be in receipt of any form of current mortgage assistance
• Be recognised as able to pay a certain monthly amount on an ongoing basis
• Have received financial advice from another party other than the lender that is responsible for their scheme

Note: This scheme ended and was closed to new entrants on 21 April 2011.

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