Experts are warning UK homeowners not to take a mortgage holiday if they can avoid it because it will cost them in the long run.
Over two million UK homeowners have been granted a mortgage repayment holiday, due to the financial strains of the COVID-19 pandemic.
However, the holiday can’t last forever, and just because your payments are temporarily frozen, doesn’t mean your mortgage deadline changes, First Mortgage warned.
Repayments may still have to be made in the same timeframe – hiking up your monthly repayments, your interest and potentially your stress levels.
Repayments differ hugely, but after a six-month mortgage holiday it could stack up to an extra £1,331 on the total amount owed, analysis by the mortgage broker found.
For example, on an average £150,000 ($198,000) outstanding mortgage with 20 years left and an interest rate of 3.2%, your total repayment amount would increase by £900 by the end of a three-month holiday.
It would then jump up to £1801 by the end of a six-month holiday, leading to to an increase of £29 per month in mortgage payments.
Mortgage holidays are “a short-term fix” that could cause “further and more intense problems” in the long run, Lynne Paterson at First Mortgage said
“Your repayments may still have to be made in the same time frame, both capital and interest, which could amount to thousands on top of your initial repayment.
“If you find yourself in a sticky spot, speak to a mortgage adviser, speak to your lender and speak to your bank before making any long-term decisions.”
Currently homeowners are entitled to take up to six months holiday from their mortgage due to the pandemic – a respite that is available to them until March 2021.
What's more, although the official government stance is that taking a mortgage holiday will not affect your credit score, lenders are permitted their own discretion when deciding if you can obtain a mortgage based on your current credit and financial status.
The break in payments or failure to make payments will appear on your credit record.
Taking a mortgage holiday could also damage your future lending abilities should you be denied credit or default on a payment with a former lender.
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