If you took out a mortgage payment holiday because of coronavirus and its now come to an end it’s a good idea to get on top of the options available to you, especially if you’ve suffered a severe income drop.
What happens when your payment holiday is over?
Just before your payment holiday comes to an end, your lender should contact you to ask how you’re planning to make up the shortfall.
If you are still experiencing payment difficulties due to coronavirus, they might offer to extend your payment holiday by a further three months. If you can now afford to re-start your mortgage payments, you should do this as soon as you possibly can.
You should get in touch with your lender as soon as you can and well before your holiday payment period is due to end, particularly if you are not sure you will be able to make future repayments.
In most cases, once your payment holiday ends, your lender will recalculate your monthly payments and spread any deferred payments over the outstanding term of your mortgage. They may also discuss alternative ways of how you can repay if this is more suitable.
Make sure you’ve claimed everything you’re entitled to
Make an emergency budget
If you’re worried about cashflow, have a look at what you’re spending and what income you have coming in.
Look at how to cut your household bills, such as switching providers for your gas, electricity or mobile phone contracts.
What options might your lender consider
Spreading your deferred payments over the outstanding term of your mortgage
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.
If your financial future is uncertain, think carefully about the impact of higher mortgage repayments on your budget.
Increasing the length of your mortgage term
Extending the length of your mortgage means you might see a smaller increase in your monthly repayments. This might be an option to consider if you are worried about your income falling in the future.
However, you will be paying your mortgage back over a longer period, which means you will be paying more in interest payments.
Making interest or capital only payments
Making interest only or capital only repayments during your mortgage holiday will help reduce increases to your monthly repayments at the end of the payment holiday.
But, you will still need to repay any shortfall in your normal monthly payments. This option may also have an impact on your credit score.
If your financial situation gets worse
Talk to your mortgage lender about changing the repayment options you’ve agreed. For example, you could ask to take another payment holiday.
However, this could impact your credit report so make sure you understand the implications before you make a decision.
If you are worried you are going to miss payments or are already in arrears
Your mortgage is a priority debt. This means the consequences of not paying it are more serious than other debts. If your income drop means you are unlikely to be able to meet payments, it’s important that you talk to your lender as soon as you possibly can.
If you’re already in arrears
If you have already missed payments and are not able to come to an agreement with your lender, you should get debt advice as soon as possible particularly if you have other debts as well.
