Lenders Announce A Mortgage Payment Holiday
1st July 2020ALL YOU NEED TO KNOW IF YOU HAVE TAKEN A MORTGAGE PAYMENT HOLIDAY
As many of you will now be aware, mortgage lenders have announced support if your income has been affected by the coronavirus outbreak, including a repayment holiday of up to three months.
The mortgage payment holiday has provided a much needed lifeline for people who may have struggled to keep up with their payments during the lockdown. If you have not yet taken a mortgage payment holiday, you have until 31 October 2020 to apply for one.
WHAT IS THE LONG TERM EFFECT OF TAKING A MORTGAGE PAYMENT HOLIDAY?
Both a payment holiday and a partial payment holiday are temporary and you will still have to pay back the outstanding amount at a later date.
Interest will also continue to build during this time – unless your lender has told you otherwise – and your repayments may be higher after the payment holiday. You are likely to end up paying more in the long term.
If you find you are in a better financial position than you had expected at the start of your payment holiday, then you can avoid extra costs by paying what you can.
WILL IT EFFECT MY CREDIT SCORE?
Individual credit files should not be affected but if you are worried you should speak with your lender. You should also remember that there are other ways lenders can tell whether you have taken a mortgage payment holiday which could impact future lending decisions. Lenders may take into account other information when making lending decisions, including information provided by you or bank account information, for example.
WHAT ARE MY REPAYMENT OPTIONS AFTER TAKING THE MORTGAGE PAYMENT HOLIDAY?
Your lender will discuss any sums covered by a payment holiday, increases in your monthly repayments and any increase in the total amount payable under your mortgage contract once the payment holiday has ended.
They may discuss alternative ways of how you can repay if this is more suitable, but the main options your lender may consider are outlined below:
Spreading your deferred payments over the outstanding term of your mortgage
This means you will see an increase in your monthly mortgage repayments once your mortgage payment holiday period is over. The shorter the term left on your mortgage, the larger the increase in your monthly payments, once the mortgage payment holiday is over. You should consider the impact the higher mortgage repayments will have on your future monthly financial commitments.
Increasing the length of your mortgage term
Extending the length of your mortgage means you might see a smaller increase in your monthly repayments. But you will be paying your mortgage back over a longer period which means you will be paying more in interest over the term of your mortgage.
Making interest or capital only payments
Just making interest only or capital only repayments during your mortgage holiday might be an option for some people. This will reduce any increases in your monthly repayments compared to some other options once your mortgage holiday period is over, but you will still need to pay back any shortfall in your normal monthly payments.
IF YOU ARE ALREADY BEHIND WITH YOUR MORTGAGE PAYMENTS
Being currently behind with your mortgage payments does not exclude you from applying for a mortgage payment holiday if this is appropriate for your circumstances.
If you’re worried about repossession you should not be at risk of losing your home during this period as mortgage repossession proceedings have been temporarily suspended but do speak with your lender.
