It is fair to say the introduction of mortgage holidays provided many homeowners with comfort and confidence. Of course, it is crucial people understand that a mortgage holiday isn’t free money. There is a cost associated with taking out a mortgage holiday.
As we continue to deal with the COVID-19 pandemic, and as we try to predict what will happen in the upcoming weeks and months, it is vital homeowners consider the real cost of a mortgage holiday.
In data provided by UK Finance, one in six mortgage holders have arranged a mortgage payment holiday. The cost of a mortgage holiday depends on many factors, including:
- The size of the mortgage
- The interest rate of the mortgage
- The length of time left on the mortgage before it is paid off
A small mortgage payment holiday can become a large sum of money
It is crucial each mortgage holder considers their circumstances and status. There is a lot of advice online, but this might not be relevant to you. Taking the time to review your circumstances will provide you with confidence that you are making an informed decision.
However, there are many great starting points online. The Money.co.uk site suggests a three-month mortgage holiday will increase your overall mortgage payment by £1,331.95.
Even though the additional monthly payment might be small and manageable, it is important to look at the full cost over the length of the mortgage. This might be less appealing to property owners.
With holiday mortgage payment breaks extended to six months, it is essential homeowners don’t just take a payment break because it is on offer. You must consider your financial needs and determine if it is worthwhile taking this break.
Salman Haqqi is a Personal Finance expert at money.co.uk, and he said: “Mortgage holidays have proved to be a lifeline for millions of homeowners, who would have otherwise struggled to meet their payments and may have faced losing their homes. However, our findings show that payment holidays should be a short-term fix. 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 three-month payment holiday in a 21-year or 252-month mortgage, the end date of the mortgage doesn’t get automatically extended, so the customer now needs to pay back the mortgage in 249 months.”
Review your finances
It is also important to consider if a mortgage payment holiday will negatively affect your credit score. At first, assurances were made which assured people that taking out a mortgage holiday would not negatively impact your credit score.
However, as mortgage payment holidays are now being extended, there is a chance that the holiday will be factored into the credit score. It is vital you make an informed decision, so it is crucial you look into whether this will impact on you.
Anyone who is considering buying a home or who is looking for guidance on mortgage matters should be aware the market is operating, and help is available. Each person and household have their priorities at this current time. For some parties, the present circumstances will only reinforce their need and desire to step onto the property ladder.