Financial Dictionary - Mortgage moratorium
This mortgage situation involves the bank postponing mortgage repayments for a period. It basically involves a delay in repayments, and is subject to a specific period and certain terms and conditions. There can be many reasons for these, but they are mainly related to situations that affect the customer's payment capacity. They are subject to certain acceptance conditions. In more exceptional cases, the government or responsible authority may be in the lead on the moratorium. This is the case in the current situation caused by COVID-19).
How does a mortgage moratorium differ from a grace period?
These are very similar terms that both relate to inability to make mortgage payments. However, there are some differences. Mortgage grace periods involve restructuring the mortgage to make repayment more flexible. This restructuring may be total, if both the principal and the interest are stopped for an agreed period; or partial, if only interest payments are made. Grace periods are negotiated under the general terms and conditions of the mortgage. Moratoriums are determined by a body other than the bank, such as the government or an economic authority, in response to force majeure or exceptional factors. The bank has no decision-making or negotiating powers in this.
Special situation caused by COVID-19
The special situation over the last year has impaired the solvency of many consumers, through furlough schemes and layoffs that have seriously affected their payment capacity. For this reason, Royal Decree-Law 3/2021 was published on 2 February, regulating the moratoriums introduced by Royal Decree-Laws 8/2020 and 11/2020, of 17 March and 31 March 2020, respectively. These Royal Decrees protect borrowers who have been put in a vulnerable position by the health emergency, allowing them to benefit from a maximum delay of nine months, with no resulting increase in their future payments. This is open to holders of mortgages arranged before 18 March 2020 for the purchase of: primary residences; properties for economic activities; and non-primary residences used for rentals that have stopped receiving rent payments. The borrowers must be unemployed or have seen a drop of at least 40% in their income. There is an income cap for each family unit (on a case-by-case basis): families who spend at least 35% of their income on their mortgage and basic utilities (electricity, water and gas); and when mortgage payments represent more than 30% of family income due to COVID-19.
Borrowers should apply through the bank that agreed the mortgage. The bank will help with any questions, and with sending the necessary documents and administering the moratorium.