Requesting a grace period for your mortgage is a very useful tool, but it has a series of costs that you should be aware of in order not to make a mistake.
We'll tell you all about it and help you understand how it works.
What is the grace period in a mortgage?
The grace period is a measure whereby you do not pay the mortgage installment for a period of time or, as is more common, you only pay part of the installment, usually the interest.
In the first case, we would be talking about a total deficiency that includes both the loan capital and the interest.
The second is a partial or capital deficiency, in which only the interest generated by the loan is paid, but no capital is amortized.
In other words, you are paying the interest on your mortgage without reducing the amount of money you owe. However, your monthly payment will be much lower.
In short, when you request a grace period, you freeze your mortgage payments up to a certain point. If it is a full period, it will be almost completely frozen because interest will continue to accrue, while if it is a partial period, you will pay interest, but not capital.
When can a mortgage grace period be requested?
Anyone can request a grace period on their mortgage at any time. All that is needed is for the financial institution to accept the request. If this option is already included in the loan, it will be much easier and less expensive.
In any case, the entity is not obliged to accept your proposal unless it has signed the Code of Good Practices, which does oblige the entity to apply a partial capital deficiency for two or five years, as the case may be.
In order to qualify for this code, you must meet a series of conditions, which normally involve proving that the percentage of income allocated to the mortgage has skyrocketed or that family income does not exceed 25,200 euros.
What is the cost of a mortgage payment delay?
Requesting a grace period is not free. On the one hand, you will have to carry out a novation of the mortgage , which has its own costs. On the other hand, it increases the cost of financing the loan. Even with a total grace period, interest will continue to be generated and will be added to the debt when the grace period ends. This interest will be paid in the following instalments.
In the event of a capital deficiency, interest will be paid, but as no capital is repaid, the cost of the loan will also increase. The reason is that during this period you will not have repaid any money on the loan and the interest to be paid takes into account the outstanding capital.
The way to know how much the grace period will cost you is to check the mortgage amortization table , which has all the information about the installments. This way you will know how much you save and, by recalculating the table, how much you will pay later.
How to know if the deficiency is right for me
Mortgage grace period is a useful tool, but it comes with certain costs. That is why it is best to use it with caution and as a last resort.
Generally speaking, if everything goes well, it is not usually worth asking for a grace period on the mortgage.
This may be a solution if you foresee that you will have difficulties paying your mortgage. Before you stop paying and generate additional interest, it is better to ask for a grace period.
It can also be useful at the beginning of the loan, because it allows you to adjust your personal finances after the initial effort of buying the house. In other words, since it is normal to leave a good part of your savings at the down payment, this initial grace period will help you recapitalize yourself and, for example, recover your emergency fund.
Other alternatives to reduce mortgage payments
The main purpose of a mortgage grace period is to pay less each month. If you do not want to request it, there are other options to reduce your mortgage payments.
The simplest would be a mortgage extension to lengthen the term of the loan. The longer a mortgage lasts, the lower the monthly payments, but the higher the interest you pay overall.
