Getting a mortgage is one of the biggest financial decisions you’ll make, so it’s important to get it right. Stephen Seward (CeMap) has written about some of the options that may be available for mortgage borrowers at this time. For more information please contact us on 0161 505 0601 or via email firstname.lastname@example.org.
Mortgage Payment Holidays
A mortgage payment holiday is a break from paying your mortgage – usually for up to three months, including buy-to-let mortgages. Payment holidays will not have a negative impact on your credit file. However, homeowners should remember that lenders may use information obtained from other sources, such as bank account information, in their lending decisions. This could provide much needed help if you need it, especially if your income has been affected by the Coronavirus outbreak, but it is not suitable for everyone and it won’t be free money.
A payment holiday is a ‘deferral’ of interest rather than an option not to have to pay your mortgage. Therefore, in the first instance our advice would be that if you can afford to pay your mortgage without a payment holiday, then you should do so.
We would only advise to take a mortgage payment holiday as a last resort and you should contact your lender and tell them you are experiencing payment difficulties due to Coronavirus. We would also recommend that you ask the lender to confirm what will happen to your mortgage payments after the 3 months. Some lenders are adding the 3 months to the end of the term of the mortgage (increasing the length of your mortgage term), others may increase your monthly payments (deferring payments over the outstanding term), and some could ask for a lump sum at a later date. Any unpaid interest will probably still need to be paid back but you won’t have to worry about any additional fees or charges. We map out these different options in more detail below.
If you’re already on a mortgage payment holiday because your finances have been affected by the Coronavirus outbreak, you might be able to get this extended by a further three months. However, it’s in your best interests to start your repayments again if you can afford to.
Increasing the length of your mortgage term
Extending the length of your mortgage means you may see a small 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. This may have an impact on your financial plans and you should consider the impact of longer mortgage repayments on their future monthly financial commitments.
Spreading your deferred payments over the outstanding term of your mortgage
An option for some homeowners may be to have a type of payment holiday where payments are deferred. Spreading payments out over the remaining mortgage term, means that 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. Homeowners should consider the impact of higher mortgage repayments on their future monthly financial commitments. It helps to map out a clear financial plan with a professional financial adviser.
Making interest or capital only payments
If you change the type of your mortgage to interest or capital only, this will reduce your monthly repayments in the short term, but you will still need to pay back any shortfall in your normal monthly payments during your entire mortgage term.
Important information from your lender or mortgage adviser
Your lender or mortgage adviser should explain the impact of any option on your monthly payments or the term of your mortgage. They should also discuss options for you to choose an alternative means of repaying the amount if this is more suitable. Any information should be provided in good time and make clear that you could be paying more over the lifetime of the mortgage, compared to an alternative repayment means, such as using a lump sum.
You should also always ask your lender or mortgage adviser to explain what this will mean for you and whether there are other options which may be available to you.
Using a mortgage broker/ adviser
Unlike many branch and telephone-based mortgage sellers in banks and building societies, Money & Mortgages advisers are fully qualified to advise you on a broad range of lenders and products. This means you benefit from genuine choice coupled with quality advice. Using a mortgage adviser is a great help when it is difficult to get hold of the wide variety of different people that you need to progress your remortgage or purchase.
I’m still working and available during the Coronavirus lockdown and am happy to arrange video meetings and phone appointments. For more information please contact us on 0161 505 0601 or via email email@example.com.
Think carefully before securing other debts against your property.
Your property may be repossessed if you do not keep up repayments on your mortgage.
Some buy to let mortgages are not regulated by the Financial Conduct Authority.