Mortgage grace period: everything you need to know to apply for it

Life is a succession of unforeseen situations that, at times, can make us need to reduce certain payments such as the mortgage. This has a specific name known as the mortgage grace period. Below we inform you in detail of everything you need to know if you are thinking of deferring your mortgage.

What is the grace period on a mortgage?

The grace period on a mortgage is a pause in which you can defer payment of principal, interest or both. Some banks offer this possibility when you need a financial respite to face future payments.

To get it, you simply have to apply to the bank and they will review your situation. The conditions can vary a lot: there are banks that offer only a few months grace period, others more than 5 years and others that do not allow this option.

Who is eligible for a mortgage grace period?

Not everyone seeking a mortgage can get a “time-out” on payments, as it depends on the bank and the country. Those who tend to have that option are first-time homebuyers who may need to adjust their finances; those investing in property, who can get extra time to look for tenants or make improvements; and those on variable incomes, such as the self-employed, who can tailor payments to their irregular income.

However, these options should be carefully reviewed because approval and terms vary from bank to bank and from case to case.

When to apply for a mortgage grace period?

A mortgage grace period is a special situation that you should only request if you really need it. If the bank grants it, keep in mind that, at the end, the monthly payment will go up considerably, which can complicate things even more.

Before deciding, it is best to do your own analysis and explore other options to keep your finances in balance. The grace period is a tricky thing, so use it with caution and only when it is really necessary.

How to ask for a mortgage grace period?

When we think about asking for additional time to pay the mortgage, it is important to talk to the bank and understand how it works. 

This “breathing space” can be requested at the beginning of the loan, usually when buying the house is financially burdensome, or later if we are going through temporary difficulties. Before deciding, it is key to analyze the pros and cons, as it can affect your monthly payments and your financial situation in general.

Requirements to apply for a mortgage grace period

The requirements to apply for a mortgage grace period depend on the bank, your history as a debtor and the type of mortgage you have. Some of the requirements may include having a good repayment history, having a certain amount of time left to pay off the mortgage and not having too much debt compared to other loans.

Each situation is different, so it is best to review the documents and requirements of your bank before applying for this economic respite.

How much does a mortgage grace period cost?

During the grace period the monthly mortgage payment goes down, but at the end it goes up again and can be higher than the original one. This happens because during this period only the interest is paid and, when the original conditions are resumed, the interest increases with what is still owed.

In addition, changing the terms of the mortgage involves a new process known as “novation“. This brings with it extra costs such as notary and registry fees, adding to the total mortgage.

Advantages and disadvantages of a mortgage grace period

When you decide to opt for a loan grace period on your mortgage, there are both positive and negative aspects to take into consideration. This allows you enough flexibility to allocate resources to other needs or to adapt to changing circumstances.

However, it is important to keep in mind that this benefit also has its drawbacks, as it may imply a higher total cost in the long term and a slower amortization of the debt. In addition, not all lenders offer this option and some may impose requirements such as a strong credit history or a significant down payment. Before making a decision, remember to evaluate these factors carefully.

Alternatives to a mortgage grace period

Instead of choosing a mortgage grace period, you have two other options available to you: extending your mortgage or adhering to the Code of Good Banking Practices.

The mortgage extension reduces the monthly payment, but it is not guaranteed and requires negotiation with the bank. In addition, by extending the repayment period, interest may increase.

The second option is to take advantage of the Code of Good Banking Practices. To do so, the mortgage payment must exceed 50% of the net family income, with family income not exceeding three times the Public Multiple Effect Income Indicator (IPREM) and a relevant economic alteration in the last four years.

If you meet the requirements you have a series of potential benefits that include a partial grace period of 5 years, the extension of the repayment period and the reduction of the interest rate for variable mortgages.