Mortgage Payment Holidays — Who Can Use Them and When

What payment holidays are

Payment holidays are the option to suspend repayment of one or several mortgage instalments for a set time. During the suspension you do not pay the instalment, which frees up room in the budget at a more difficult moment, for example a temporary drop in income or unexpected expenses.

It is important to remember that the suspended instalment is not written off. The commitment continues, and repayment has to be completed at a later date. This most often results in an extension of the total loan term by the number of suspended instalments.

Two forms of payment holidays

The first form is statutory holidays, introduced by legislation as part of a policy of supporting borrowers. Their availability, conditions and scope depend on the regulations currently in force, which are sometimes time-limited and hedged with criteria, for example concerning the purpose of the loan or its value.

The second form stems from the provisions of the loan contract. Many banks offer the option to suspend an instalment on terms set out in the contract, independently of statutory programmes. The rules of such contractual holidays differ between banks, so it is worth checking them in your own documentation.

Consequences of using them

The biggest advantage of payment holidays is immediate budget relief. It is real support during a period of temporary difficulty. You must remember, though, that this benefit has a price spread over time.

Suspending instalments usually extends the repayment period, and in the case of contractual holidays interest may accrue during the suspension, which increases the total cost of the loan. That is why payment holidays are best treated as a tool for a difficult moment, not as a way to permanently reduce the cost of the commitment.

When it is worth using them

Payment holidays make sense when you need temporary support, for example during a short-term loss of liquidity, a sudden expense or a temporary drop in income. It is an emergency solution that helps avoid arrears and a negative entry in your credit history.

If, however, your difficulties are long-lasting, simply suspending a few instalments may not be enough. In such a situation it can be better to talk to the bank about restructuring the loan or to analyse the possibility of refinancing. Before using the holidays always check the current conditions, because the rules in this area change.

Summary: help for a hard time, not a free break

Payment holidays are a useful mechanism that gives breathing space in a tougher period, available in a statutory and a contractual form. The key is to understand that the suspended instalment does not disappear — the repayment period usually lengthens, and with contractual holidays interest may accrue. Treat them as a solution for temporary difficulties, and before deciding check the conditions currently in force and the provisions of your own contract.