Paying your mortgage during Covid-19 - are you eligible for a payment holiday?
Rishi Sunak’s announcement of mortgage payment holidays was welcome news for many homeowners who have or will be financially affected by coronavirus.
But exactly what does a mortgage payment break mean and how could it affect your repayments later down the line?
The Government has confirmed that you may look to take a mortgage payment holiday on your residential or Buy-to-Let mortgage for up to three months to help your financial situation.
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What is a mortgage payment holiday?
This is an agreement between you and your lender that allows you to temporarily stop your mortgage repayments. With so many people unable to work because of Covid-19, incomes are likely to take a hit, leaving many homeowners unable to pay their mortgage.
The Government announced on the 11th of March, 2020, that those in financial difficulty because of Covid-19 could apply for a mortgage payment holiday. This gave lenders more flexibility to help customers.
Lenders began offering mortgage payment holidays to their customers shortly after Rishi Sunak’s budget announcement which included measures to support the UK economy as the coronavirus outbreak escalates.
Will my mortgage repayments increase after the payment holiday?
Yes and when you apply for a payment holiday, your lender should recalculate your monthly payments and let you know the amount they will go up.
if you need to take a break from your mortgage, the balance of your loan remains and because your lender will still charge interest on your mortgage, you’ll likely have a larger mortgage once your repayments begin again. The amount will likely be small, although this is completely dependent on the terms of your mortgage, the interest you pay and the type of mortgage you have.
Currently the Government’s announcement advises applications for holiday payments for up to three months, however, some lenders may be prepared to extend this. This could mean that some mortgage customers accumulate substantial interest which will likely be charged alongside future mortgage payments.
If you’re unsure about how much your mortgage payments could be once your payment holiday is over, it can be helpful to seek advice from a mortgage broker. They can look at the terms of your mortgage along with your lenders current stance on mortgage holidays, to calculate your mortgage repayments for a variety of scenarios and time frames.
What should I do if I cannot pay my next mortgage payment because I have been affected by coronavirus?
Your lender should be understanding and take your new financial circumstances into consideration if you need to apply for a mortgage holiday because of the coronavirus.
If you feel unsure about your financial future and are unable to pay your mortgage, it’s important to let your lender know as soon as possible via telephone or in writing.
Should I cancel my direct debit for my mortgage payment?
No! It is essential that you contact your lender and discuss your eligibility for a mortgage payment holiday.
Your lender will likely assess your situation on a case basis, so depending on your circumstances, you may be offered a reduced mortgage repayment instead of a complete mortgage holiday.
Will a mortgage holiday payment affect my credit score?
Hundreds of homeowners hit by coronavirus have concerns about whether taking a mortgage payment holiday will have a negative impact on their credit score.
The good news is that despite initial fears, the FCA’s guidance makes clear to firms that they should ensure that taking a payment holiday will not impact your credit score.
Advice for homeowners calling lenders about mortgage repayment breaks
If you pay by Direct Debit and your mortgage payment is due to come out within the next 10 days, some lenders may not be able to arrange the mortgage payment holiday for your next monthly payment.
Depending on the lender, this could mean that your mortgage holiday would take effect from the following month, so if you’re unsure, visit your lender’s website or ask an advisor at The Mortgage Hut.
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