Putting Your Mortgage On Hold: What You Need To Know

If you're struggling to make your mortgage repayments, you may be considering putting your mortgage on hold. This is an option if you have no means of making your next payment. However, if you have the funds available, it may not be in your best interest to put your mortgage on hold, as you will save on interest for a short period but pay more in the long term. There are other options to consider, such as refinancing or switching to interest-only payments. If you're thinking of buying a home, you may have come across the term rate hold, which refers to a guaranteed mortgage rate offered for a set period. This can be beneficial when interest rates are fluctuating.

How to put your mortgage on hold

Seek refinancing options

If you are considering putting your mortgage on hold, refinancing could be an option to explore. Refinancing involves revising and replacing the terms of your existing mortgage agreement. It is a way to manage your cash flow and potentially save money. Here are some things to consider when seeking refinancing options:

Interest Rates

One of the main reasons for refinancing is to take advantage of lower interest rates. If interest rates have dropped since you took out your original mortgage, refinancing can help you save money on your monthly payments. Lower interest rates can also help you pay off your mortgage faster, as you can put the savings towards the loan's principal. Additionally, if you switch from a fixed-rate mortgage to an adjustable-rate mortgage, you may benefit from more favourable borrowing terms.

Credit Score and History

Your credit score and history are important factors when considering refinancing. A hard inquiry will be made by the lender, which can cause your credit score to drop temporarily. Ensure your credit history meets the minimum requirements, and consider building up your credit score before applying for refinancing.

Costs and Fees

Refinancing comes with costs, including appraisal, title search, and application fees. These costs can amount to between 5% and 7% of the loan's principal. Additionally, you may have to pay closing costs on the refinance. It is important to consider whether the benefits of refinancing outweigh these costs.

Equity

Your home equity is another crucial factor in refinancing. Lenders, especially conventional lenders, may not refinance your mortgage if you do not have enough equity in your home. Ensure you have sufficient equity available, and consider how refinancing may affect the equity you hold in your home.

Loan Term

When refinancing, you can choose a loan with a shorter or longer term. A shorter-term loan can help you save on interest in the long run, but it will result in higher monthly payments. On the other hand, a longer-term loan will reduce your monthly payments but may end up costing you more in total interest over time.

Cash-Out Refinancing

Cash-out refinancing allows you to tap into the equity in your home without selling it. Depending on your equity, you can get a cash-out refinance and take out a larger loan. However, this option often comes with a higher interest rate, so consider your financial situation carefully.

Contact a reliable lender

If you are considering putting your mortgage on hold, it is important to contact a reliable lender to discuss your options. A reliable lender can provide you with advice and guidance on the best course of action for your unique circumstances. Here are some reasons why you should contact a reliable lender:

• Access to Expert Knowledge: Reliable lenders have a team of mortgage experts who understand the complex world of finance. They can explain various options, such as refinancing or switching to interest-only payments, and help you navigate the potential pitfalls.
• Smooth Application Process: A good lender will streamline the mortgage application or modification process. They will guide you on gathering the necessary financial documents, such as pay slips, tax returns, and bank statements, ensuring your application is thorough and complete, reducing potential delays.
• Competitive Rates: Working with a reliable lender gives you access to competitive rates from multiple financial institutions. They can help you secure a favourable rate hold, which guarantees a specific interest rate for a set period, protecting you from future rate increases.
• Customer Service: Beyond the financial aspects, a reliable lender should also offer excellent customer service. This includes being responsive to your queries, providing clear and honest communication, and tailoring their advice to your specific circumstances.
• Proactive Solutions: A good lender will proactively suggest solutions and provide upfront valuations to explore your options. For example, they can help you access the equity in your property or discuss the potential benefits of refinancing under favourable conditions.

When facing challenges with mortgage repayments, it is crucial to seek advice from a trusted and reliable lender. They can provide clarity, present viable alternatives, and help you make informed decisions about your financial future.

Understand the implications

Putting your mortgage on hold is a viable option if you have no means of making your next repayment. However, it is important to understand the implications of doing so. Firstly, you will be saving interest for a short period, but you will end up paying for it in the long run, typically for 2-3 years. This could significantly increase your overall costs.

Secondly, there may be other options available to you instead of putting your mortgage on hold. For example, refinancing under favourable conditions could be an option, or accessing the equity in your property. It is worth seeking professional advice to explore these alternatives.

Additionally, if you are considering putting your mortgage on hold, it is important to be aware of the potential impact on your credit score and future loan applications. Lenders will assess your creditworthiness, and a history of late or missed payments can negatively affect your chances of securing financing in the future.

Furthermore, there may be implications regarding the ownership of your property. If you are unable to make repayments, the lender may have the right to repossess your home. This could result in the loss of your property and any associated equity.

Finally, it is crucial to understand the specific terms and conditions of your mortgage agreement. There may be penalties or fees associated with putting your mortgage on hold, and these should be clearly outlined in your contract. It is always recommended to seek independent financial and legal advice before making any decisions regarding your mortgage.

Explore seller financing

Seller financing is an alternative to conventional mortgages when the latter is unavailable or unsuitable. In this arrangement, also known as owner financing, the property owner acts as the lender, eliminating the need for a bank or other financial institution. The buyer signs a promissory note with the seller, agreeing to repay the purchase amount, usually with interest, according to mutually agreed terms.

The arrangement provides flexibility and simplifies what is otherwise a complex transaction. It can also provide access to homeownership for buyers with credit challenges or unconventional incomes. The two parties negotiate and agree upon all aspects of the financing arrangement, including the purchase price, down payment amount, interest rate, repayment schedule, and term length.

However, it is important to note that seller financing typically involves shorter terms than conventional mortgages, often with a balloon payment that requires refinancing. The documentation for seller financing should include a promissory note outlining the loan terms and a mortgage or deed of trust that secures the property as collateral. It is recommended that both parties engage legal professionals to draft the necessary documentation and clearly outline all relevant terms.

Seller financing can benefit both buyers and sellers. For buyers, it offers a non-traditional way to finance a home when they may have difficulty qualifying for a traditional mortgage due to credit issues or a lack of assets. It can also help facilitate a faster closing by circumventing the requirements and rules of lender financing. For sellers, it provides passive income from interest payments, potential savings on fees, and the ability to treat their home like a real estate investment. However, it is important to consider the risks and downsides of seller financing, such as the risk of default by the buyer, a potentially lengthy and expensive foreclosure process, and complicated taxes.

Prepare financial documents

Preparing your financial documents is a crucial step in the mortgage application process. It can help expedite your application and increase your chances of success. Here are some steps to guide you through the process:

Firstly, gather all the necessary documents, including pay slips, tax returns, and bank statements. These documents provide a snapshot of your financial situation and are essential for lenders to assess your ability to repay the loan. Ensure that you have multiple recent pay slips to demonstrate consistent income. Similarly, collect your tax returns from the past two years to validate your income claims. Lenders may also request additional paperwork, so it is beneficial to have other financial records readily available.

Secondly, maintain a good credit score by paying your bills on time and managing your credit card balances. Keeping your credit card balances low reflects positively on your financial management skills and can enhance your creditworthiness. Additionally, avoid opening new lines of credit in the months leading up to your mortgage application. This stability in your credit history will work in your favour during the approval process.

Lastly, be diligent about organizing and securely storing your financial documents. Create a comprehensive file that includes all the aforementioned paperwork. Ensure that the information in each document is up to date and easily accessible when needed. This level of preparation will not only streamline the mortgage application process but also demonstrate your financial responsibility to lenders.

By following these steps and carefully preparing your financial documents, you can confidently approach the mortgage application process, increasing your chances of securing the financing you need for your new home.

Frequently asked questions