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Payment Holiday

Mortgage Payment Holiday

We all love holidays, don’t we? A holiday is a time to take a break from the stress of everyday life, to simply relax and recharge your batteries. It is also a good time to reflect on the past year and make some plans for the year ahead.

With all the additional stress we have to face today, brought about by rising interest rates, the world credit crisis and turmoil in financial markets, we all wish we could go on holiday and just forget about it all (even if just for a while.) If you have been battling to keep your head above water paying your ever increasing mortgage repayments, talk to your bank.

Many banks now offer their clients what is called a holiday period. The payment holiday will allow you to take a break from repaying your mortgage, for one to up to three months. Some banks offer the holiday period to new clients when they buy their first home, called an initial payment holiday, some offer the facility to existing mortgage clients as well.

The best is to check with your bank and see if you qualify for the payment holiday. If it is granted, don’t go on a spending spree, rather be financially mature and use the additional funds to pay off some short term debt. This will help relieve your overall indebtedness and give you some welcome breathing space.

While most banks will offer you this option for one to three consecutive months, some banks now have a different option. This allows you to skip one regular instalment in the same month of every year for the duration of your mortgage period. All the major banks—ABSA, First National Bank, Standard Bank and Nedbank—have a payment holiday option available at the present moment but in different forms. Each case is treated individually.

Although banks have to follow the same legal regulations their products and rules differ. We will look at the most general rulings regarding payment holidays but don’t take it for granted that this is applicable to your own bank, rather check.

Qualifying terms:

1.The outstanding balance, or new loan, must not exceed 100% of the loan to value.
2. The payment holiday is for a period of one to three consecutive months.
3. The instalments you had to pay will be re-calculated on the outstanding balance after the repayment holiday over the remaining repayment term.
4. Some banks may extend the term of your mortgage where possible so as to not increase your monthly repayments once you start paying again.
5. There should be no arrears on the account for at least the last six months.
6. Customers can usually only apply for the repayment holiday once.
7. Interest on the mortgage is not frozen and will continue to be calculated on the daily balance and capitalized monthly.
8. Once the payment holiday has been approved the client must make the necessary arrangement to cancel payments for the period chosen.
9. The client must also take steps to ensure that the monthly payments are re-instated after the holiday period, be it via stop order, debit order or cheque.

The following types of accounts usually qualify:

The banks may also differ in what type of accounts will qualify for the repayment holiday.

1. Individual accounts
2. Joint accounts
3. Ordinary home loans
4. Vacant land
5. Residential property
6. Group Scheme accounts that have no collateral security
7. Further loans

The following types of accounts are usually excluded:

1. Loans with collateral or subsidised loans
2. Companies
3. Business and commercial loans
4. Close Corporations
5. Trust accounts
6. Bonds that are under cancellation
7. Accounts in arrears
8. Non Resident accounts

One important note to take care of is to ask your bank if your interest rate is going to remain the same after the repayment holiday. Here we work from the assumption that there was no interest rate hike during the holiday period.

Use your options wisely.

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