Home Finance Mortgage Mortgage holidays – a step-by-step guide on how to get them

Mortgage holidays – a step-by-step guide on how to get them

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Mortgage holiday: Emmanuel suddenly lost his job and panicked: a year ago he took out a mortgage, which now has nothing to pay off. Friends advised Emmanuel to suspend or reduce loan payments for several months until he gets a new job. We tell you the conditions under which you can apply for a mortgage holiday.

Borrowers have the right to go on vacation from July 31, 2019. This is a chance to legally take a breather in mortgage payments without driving yourself into debt.

The maximum vacation period is six months. And at this time, the borrower is fully protected: the bank can neither terminate the contract ahead of schedule, nor collect mortgage housing.

Holidays can be issued on any loan that is taken on the security of housing. But  only once , and only under certain circumstances.

In what cases can I take a mortgage vacation?

Four conditions must be met at the same time:

  1. Your only ready-made or still under construction housing is issued in a mortgage.
  2. The loan amount does not exceed 15 million rubles.
  3. You have not yet taken a mortgage holiday on this loan agreement and on this property.
  4. After applying for a loan, you found yourself in a difficult situation that dramatically worsened your financial condition.

Situations that give the right to a break in payments:

  • Job loss.
  • Loss of ability to work for two consecutive months or more (this includes illness and maternity leave).
  • Obtaining a disability of I or II group.
  • Significant drop in income: Average income in the last two months has fallen more than 30% from the previous year’s average monthly income, and mortgage payments now account for more than half of income.
  • The appearance of new dependents (children, disabled people of groups I and II or people whom you took under guardianship or guardianship) and a simultaneous decrease in income: the average income for the last two months has decreased by more than 20% compared to the average income for the previous year, and this mortgage payment exceeds 40% of monthly income.

When all conditions are met, you are eligible to apply for a mortgage vacation. Even if you have already missed a loan payment, the bank cannot refuse you just because of this. Penalties and late fees for the entire grace period will be frozen – they will have to be repaid after the holidays.

How to apply for mortgage holidays?

You must inform the bank about your desire to take a break in payments for a while or reduce their size. The bank does not have the right to refuse if you provide the necessary documents:

1. Written statement.

The application must indicate the reason why you need a vacation, as well as the acceptable amount of payments for this period (it can be zero). In the application, you can specify the date and date of the beginning of the vacation. If this is not done, then the default vacation will last six months, and the start date will be considered the day you applied.

Ivan assumed that he would be able to find a new job within four months, and arranged for vacations for this period. He did not have a financial airbag, so the payments had to be stopped completely.

Holidays can be terminated ahead of schedule, but they cannot be extended or the selected amount of payments can be reduced. Therefore, it is best to arrange holidays immediately for six months and at this time set the minimum payments that you can definitely handle, or completely stop them.

If suddenly your financial situation improves before the holidays are over, it makes sense not to interrupt them, but to save the money that has appeared on a deposit. This will create a reserve in case you run into financial difficulties again. After all, the second time on the same loan you will not be given a vacation.

2. Confirmation of a difficult situation.

Paperwork may vary depending on your circumstances. This may be a certificate of registration as unemployed, sick leave, a certificate of disability, a certificate of income. If there are children in the family, you will need to submit to the bank a birth certificate or adoption (adoption) of the child or a certificate of registration of guardianship or guardianship.

3. Consent of the property owner.

If you took out a mortgage loan secured by your home, this paper is not needed. But if not your property, but, for example, the apartment of your parents, became the collateral for the mortgage, they will have to give their written consent to your mortgage holidays.

All these documents must be brought to the bank and handed over against receipt or sent by registered mail with acknowledgment of receipt. Your loan agreement may also allow another way of submitting documents – for example, remotely through your personal account on the bank’s website.

The bank must consider your application within five business days. If the documents are in order, you will be notified that the terms of the loan agreement have been changed to suit your requirements. If some papers are missing, the bank will send an additional request. And then five working days will begin to count from the moment you provide the missing documents.

The Bank can inform about its decision through a personal account on the website, by e-mail, using a push notification in a mobile application or an SMS message. The feedback method is usually specified in the contract. If there is no such clause in the contract, then the bank must send a notice by registered mail or hand it over against receipt.

If the bank did not respond within the time period established by law or refused to give holidays, although you provided all the necessary documents, you can complain to the Bank.

After your mortgage holiday

You’ve just secured your mortgage holiday, now what? Take some time to plan for the future. Think about all the tasks you need to do, or would like to do, to make your mortgage-free life feel as stress-free as possible. Is there anything you need to set up? Are there any maintenance jobs that should be done before your break starts? If so, try to get those done before starting your mortgage holiday so they don’t fall by the wayside.

Do vacations affect the amount of debt on a loan?

The amount of interest on the loan and the total amount of debt will not change. Mortgage holidays only temporarily adjust the terms of your agreement with the bank. After they run out, you will again be required to repay the loan according to the previous rules. Only the mortgage repayment term is increased – exactly as much as the holidays lasted.

Moreover, at first you will pay off the main debt with interest according to the previous schedule, and at the very end – the part that fell on the grace period. If you paid any amounts during the holidays, they will be deducted from payments in the last months of the loan.

According to the mortgage agreement, Ivan had to pay 36,000 rubles every month for 20 years. After he took a vacation for four months, his mortgage was extended for the same period, but the total amount of debt did not increase. If Ivan continued to pay his debt during the holidays, but reduced payments from 36,000 to 10,000 rubles a month, then these payments would reduce payments in the last four months of repayment of a mortgage loan from 36,000 to 26,000 rubles.

All this will be reflected in the new payment schedule, which the bank must provide before the end of the mortgage holiday.

Can I pay off part of the debt early during the holidays?

If during the holidays you realize that you can make larger payments than you have set for yourself for the grace period, then you need to carefully assess the situation before increasing payments.

Early payments during the mortgage holidays do not reduce the amount of the overpayment and the total amount of debt. It’s just that in the last months of the loan, payments will be less – by the amount of early payments.

You can really at any time during the grace period early repay part of the loan. But if the amount of your payments during the holidays reaches the amount of payments according to the usual schedule – as if you did not take a vacation, then the grace period will automatically end.

In this case, the bank will receive a signal that your financial situation has improved, and the grace period will end at your initiative. You will be sent a new payment schedule within three business days.

Ivan took a vacation for four months and began to pay 10,000 dollars a month instead of 36,000 dollars according to the usual schedule. If in the second month of vacation he contributes 20,000 dollars, then the vacation will continue. If in the second month he pays 134,000 dollars, then the amount of payments during the holidays (10,000 + 134,000 = 144,000 dollars) will be equal to the amount of payments during the holidays according to the usual schedule (36,000 × 4 = 144,000 dollars). And then the holidays will automatically end.

Holidays are given to those who find themselves in a difficult financial situation. If you have the money to make all your regular payments and still have some money left over to pay off some of the debt early, then things aren’t so bad and you don’t need a vacation.

If you unexpectedly received an amount that you would like to use to pay off the loan, but your income is still unstable, it is better to save this money for payments after the holidays are over.

Will vacation ruin your credit history?

No. Information about mortgage holidays must be entered in the credit history. However, this fact does not spoil it.

Another thing is if you violated the terms of the holidays. For example, they delayed reduced payments or did not begin to make them at all, although they should have. This will worsen your credit score and may prevent you from getting better loans in the future. Therefore, it is better to adhere to agreements with the bank and immediately discuss all problems with payments with the lender directly.

What to do if the holidays are over, but the difficult situation is not?

Nobody is immune from this. If the holidays are not enough to improve your financial situation, then it is most reasonable to honestly admit this to the bank and try to jointly resolve the issue with payments. This is the most logical step – the bank is also interested in you repaying the debt, it can offer options for solving the problem, for example, restructuring the debt or refinancing the loan .

In addition, some banks have their own programs to reduce or defer payments. Often creditors are ready to provide them for a longer period than six months.

Finally, an extreme measure, but nonetheless quite real, is to sell a mortgage apartment and return the debt to the bank. Maybe it will be possible to find a buyer right during the holidays.

Do not forget that housing is pledged to the bank. That is, you need to obtain the consent of the lender to sell the mortgage apartment on the condition that the money received will be used to repay the loan.

In order not to find yourself in a similar situation, before applying for a mortgage, be sure to form a financial airbag in the amount of three to six monthly family incomes. This reserve will help you hold out until you cope with your financial difficulties. According to statistics from the National Association of Professional Collection Agencies, it takes the average person about four months to fix their affairs and resume payments on the loan in full.

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