Is an interest-only deal or a mortgage holiday preferable?

Q We are looking to move out of our London house next summer – our second child is due in June and we plan to be nearer the grandparents. As my wife is finishing work in April and we are not tied to our Nationwide mortgage I thought I would inquire about going interest-only for a year to help out with the drop in income. Instead, my bank told me I could take a payment holiday for a year. With the current interest rate I am repaying £13,600 a year, about £6,000 of which comes off the mortgage value with the remainder as interest payments. If I take this holiday my redemption will go up by £6,000 in a year's time (at current the interest rate) so if I save £10,000 over the holiday period I would be better off. Obviously, my repayments when the holiday finishes will rise as I am paying over a shorter term – I was quoted an extra £75 a month. The only pitfalls I can see would be that interest rates rise to such a point that the redemption would far exceed what I could save (and my payments would significantly rise if I left the deal as it is), or if I was unable to sell my house next year. RB A If you take a year's payment holiday you will pay off no capital from your mortgage and the interest you don't pay during that year will be added to the loan. Because you won't be repaying any of the loan, the interest will be calculated on the size of your mortgage at the start of the payment holiday. So your total mortgage will increase by the mortgage figure multiplied by the interest rate. However, if you went with the interest-only idea your mortgage loan wouldn't go down, but nor would it increase as it would if you opted for the holiday. Although you would have to make monthly interest payments. In the long run this is the cheaper option because you won't end up paying interest on the interest as you would after the payment holiday is over.