For the majority of people, their mortgage payments are the biggest outgoing. So, we thought we would look how they work and what it actually means for home owners who are struggling to keep up with payments during the Corvid-19 pandemic
The government has announced support for households affected by coronavirus by providing a 3 month mortgage payment holiday. The self-employed are likely to be the biggest beneficiaries from the measures, as part of the package to prop up society during the financial fallout due to Covid-19.
But how do you go about applying for a ‘mortgage holiday’, who is eligible, how it will affect your credit report?
Is a mortgage holiday suitable for you?
If you are unable to pay your mortgage due to the impact if coronavirus – the first step is to contact your lender. We have however been inundated with people who are not sure what they should do, worried about the general lack of clarity in regards to a ‘Mortgage Holiday’.
To begin the lender will conduct a full assessment of the mortgage owner’s finances and make a decision based on that. If the lender determines the mortgage owner has not been sufficiently affected by Corona Virus, or they feel the customer could restructure their outgoings every month, they may not agree to a payment holiday request.
According to the Building Society Association “It’s important that customers who believe they may be impacted by COVID 19, either directly or indirectly, contact their lender at the earliest possible opportunity to discuss if the payment holiday is a suitable option for them.”
What are the benefits and pitfalls of a ‘Mortgage Holiday’?
If you find yourself in the situation where you don’t have the money to pay your mortgage, lenders should allow you some breathing space. However, what’s on offer is a break and not free money. Interest will still be calculated over the period of the payment holiday and then added to the mortgage, along with the repayment of that part of the loan you need to catch up with.
This means the monthly payments will be increased to cover the amount added once you resume your payments. A payment holiday will not be suitable for everyone.
How will the ‘mortgage holiday’ impact me down the line?
You will most likely see an increased payment on your direct debit to account for the loss during the holiday. The important thing is to ask for help as early as possible rather than ignoring the issue. While lenders should offer support to borrowers, they can only do that if they know there is a problem.
Remember, the ‘Mortgage Holiday’ isn’t the lender paying mortgages for a three-month period but a deferment of the payments into the future. You will have to pay everything back, plus interest in most cases.
If you find yourself in this situation and would like to discuss the details of your agreement, contact us to provide an explanation of what this means for you and to understand what (if any) other options might be available.
What will happen to my credit rating?
You cannot stop making payments without speaking to your bank or lender. You will go into arrears and this will adversely affect your credit rating which could prevent you from borrowing in the future.
If you are a homeowner or landlord and you need advice on this or any other matter relating to mortgages, household debt or financial advice – contact your local experts at Property Debt NI. With over 20 years’ experience in debt advice and debt restructuring, we can help you find the best route during these difficult times.