How to calculate how much mortgage payment holiday will cost you – and it could be THOUSANDS of pounds

May 28, 2020

HOMEOWNERS may soon be able to extend mortgage repayment holidays by up to six months but this could cost you thousands extra.

Chancellor Rishi Sunak first told lenders to offer three month mortgage reprieves for struggling borrowers back in March, before plans to extend the scheme for a further three months were announced earlier in May.

⚠️ Read our coronavirus live blog for the latest news & updates

The guidance is expected to take place shortly following a consultation, which ended on May 26.

Ultimately, it means borrowers could get six months' off from having to pay their mortgage bill.

While this may sound great in theory, you should only take-up this option if you're seriously struggling to get the funds together to cover costs.

The problem is that taking a mortgage payment holiday, however long that lasts, will end up costing you more over the life of the mortgage.

Mortgage help being offered

HERE'S what's planned for struggling mortgage borrowers- these proposals are expected to be confirmed by the city watchdog shortly:

Borrowers who can afford to return to full repayment should do so – at the end of a payment holiday, firms should contact customers to find out if they can resume payments and if so, agree a plan on how the missed payments will be repaid.

Anyone who continues to need help gets help – lenders should continue to support customers who have already had a payment holiday where they need further help. Firms are expected to find out what borrowers can re-pay and, for those who remain in temporary financial difficulty, offer further support. As part of this firms should consider a further three-month payment holiday.

Extend the time the scheme is available to people who may be impacted at a later date – customers that have not yet had a payment holiday and who are experiencing financial difficulty will be able to request one until October 31, 2020.

Keep a roof over people’s head – the current ban on repossessions of homes will be continued to October 31, 2020. This will ensure people are able to comply with the government’s policy to self-isolate if they need to.

Payment holidays and partial payment holidays offered under this guidance should not have a negative impact on credit files. But credit files aren’t the only source of information which lenders can use to assess creditworthiness.

That's because repayments aren't wiped completely – you still owe that cash – and in the meantime interest is continuing to build up.

Salman Haqqi, personal finance expert at comparison site Money.co.uk, said: "It’s important to remember that you will still owe the money and interest will continue to accrue while the deferred payments remain unpaid.

"And in most cases when a customer takes a payment holiday, the end date of the mortgage doesn't get automatically extended, so the customer needs to pay back the mortgage over the same time frame."

Payment holidays can also stop you from getting a mortgage in future despite not affecting credit scores.

How much will a mortgage holiday cost?

Exactly how much a mortgage repayment holiday will cost depends on the size of your mortgage, how much time is left on it, and the interest rate you're paying – but it could be thousands.

Money.co.uk, for example, says a three-month holiday on the average £136,000 outstanding loan it sees with 21 years left on it at an interest rate of 2.72 per cent would cost an extra £665.08, rising to £1,331.95 for a six-month break.

Meanwhile, taking trade body UK Finance's average data – based on a £133,000 outstanding balance over 17 years with an average 2.37 per cent interest rate – it says a three-month holiday would cost you an extra £2,856 over the life of the mortgage, while six months would set you back £5,916.

How can I calculate how much a mortgage holiday will cost?

When it comes to calculating how much a mortgage holiday will cost, you should contact your lender as it will be able to provide the exact details for you.

If, however, you want a ballpark figure, there are a number of free online calculators available that will give you a rough idea. We've rounded-up some of these below.

Habito

This tool is provided by online mortgage broker Habito.

It asks when your mortgage started, how much is left on it, your current term, size, interest rate, and whether you want a one, two, three, four, five, or six month repayment holiday.

But when we put in UK Finance's average data, the Habito tool told us we might want to consider remortgaging and didn't provide any further details on how much a repayment holiday would cost – although perhaps others will get a different result.

Koodoo

This online tool set-up by tech company Koodoo is recommended by the Money Advice Service and works for both repayment and interest-only mortgages.

It asks for your mortgage term, rate, size, and whether you want a one month, two month, or three month holiday. It doesn't, however, cover payment holidays that are longer than this.

Once you've input the info it'll tell you how much your current monthly repayments are and what these will rise to.

It doesn't however, tell you how much extra you'll repay in total but you can calculate this yourself by multiplying the monthly repayment increase by how many months is left on your mortgage.

MoneySuperMarket

Comparison site MoneySuperMarket runs this mortgage holiday tool, which was one of the first to launch.

It asks for your current provider, whether you want a one, two or three month mortgage holiday, your monthly mortgage payments, and whether you have a repayment or interest-only deal.

The tool will also ask for your interest rate and how long is left on your mortgage.

Its calculator will then tell you what your monthly repayments will rise to, plus how much more this costs each month compared to now. Again, it doesn't spell out the total cost of the life of your mortgage.

Principality Building Society

Building society Principality has launched a mortgage holiday tool for customers and non-customers alike.

It looks very similar to MoneySuperMarket's version asking for the exact same details, and providing the same results.

Are there any other options?

If you can start making repayments at your normal rate this is encouraged, as putting off repayments for longer will see future repayments increase and you'll end up paying more in interest too.

Another option being discussed as part of the Financial Conduct Authority's (FCA) consultation is to extend the term of the mortgage for those able to make repayments as this means monthly repayments will fall.

But again, you'll end up paying more interest over the life of the mortgage as you're paying it off for longer.

The FCA is also looking at allowing borrowers to temporarily switch to an interest-only mortgage where you only repay the interest and don't make any payments towards the capital itself.

If you don't want to wait for the outcome of the consultation, get in touch with your lender now to see what help it can provide. It may be willing to reduce or waive interest or capital payments on a case-by-case basis.

Also consider reaching out to charities, such as Citizens Advice, for free advice if you're struggling with debts.

Source: Read Full Article