What is Mortgage Holiday (Payment Deferral)?

Full Definition

A mortgage holiday, more formally a payment deferral or payment holiday, is a temporary arrangement agreed with a mortgage lender that allows a borrower to pause or reduce their monthly mortgage payments for a set period, usually a few months, during a period of financial hardship such as redundancy, illness, or a temporary drop in income. Interest generally continues to accrue on the outstanding balance during the holiday even though no payment, or a reduced payment, is being made, so the total amount owed typically increases, and the lender will usually recover the shortfall afterwards either by extending the remaining mortgage term, by increasing future monthly payments, or by adding the deferred amount to the balance to be repaid over the rest of the term -- the exact approach varies by lender and by the borrower's agreed arrangement. Taking a mortgage holiday is not the same as simply missing a payment without agreement: because it is arranged formally with the lender in advance, it is generally reported differently on a credit file than an unarranged missed payment, though lenders and credit reference agencies have varied in exactly how such arrangements are recorded over time, so borrowers considering one should ask their specific lender how it will appear on their credit history before agreeing. Borrowers experiencing temporary financial difficulty are generally encouraged to contact their lender as early as possible, since agreed forbearance measures such as a mortgage holiday, a temporary interest-only switch, or a revised payment plan are usually far less damaging, both financially and to a credit record, than falling into arrears without any agreement in place.

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