Mortgage holiday extension: Should I take a mortgage holiday extension?
A mortgage payment holiday means you don’t need to make repayments on your mortgage for now. Here’s Money Saving Expert Martin Lewis’ advice on getting a mortgage holiday extension.
Mortgage payment holidays have always been something that customers can request.
However, the Financial Conduct Authority has put rules in place to force financial institutions to offer a range of payment holidays with specific terms.
Those who are struggling financially in the face of the coronavirus pandemic can benefit from these holidays.
It’s important to serious consider whether or not you really need one before applying.
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Mortgage payment holidays have been extended until October 31, which means you can get a one for the first time until then.
If you already have a mortgage payment holiday, you can ask for an extension on this until this date.
This means you don’t have to pay your mortgage repayments until October 31.
A mortgage holiday sounds ideal, but there are big downsides to taking up this offer.
Should I take a mortgage holiday extension?
The Money Saving Expert advises only to get a mortgage holiday if you really need it.
On Mr Lewis’ blog, he wrote: “A payment holiday isn’t really the best name, a repayment deferral would probably be more accurate.
“All it means is you don’t need to make payments for the time being, but you will later, and interest still racks up even while you’re not repaying.”
When you pay your mortgage, you are lowering the amount owed and reducing the interest.
While you have a break from paying your mortgage, the interest builds up and will cost you more in the long run.
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The Money Saving Expert blog used an example to drive the point home.
It explained the hypothetical situation of someone on a £700 per month mortgage with 20 years ago.
If they took a mortgage holiday, when it ends they would have 19 years and six months left to go and will repay £725 per month.
This is worth doing if you really need to, but not everyone will have as long to pay back.
Someone with a £700 per month mortgage with only 12 months to go would end up paying £1,425 months for the next six months when their holiday ends.
To find out how a mortgage holiday would impact your mortgage, use a mortgage payment holiday calculator online.
Not only may a mortgage holiday mean you pay more interest when you resume payments, it may affect your ability to get future credit.
The Financial Conduct Authority and Chancellor Rishi Sunak specified that a mortgage repayment would not go on your credit fine or impact your future chances of getting credit.
Your mortgage holiday won’t be on your credit files, but lenders can still find out if you have taken one out in the past.
They can tell by looking at application forms, Open Banking, or payment history.
Lenders may then negatively assess you in the future if you have had a payment holiday, and the Financial Conduct Authority has confirmed this is allowed.
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