The government has announced that troubled homeowners can now apply for another three-month mortgage vacation.
The scheme, which was initially set up in March, has been extended so that the application deadline is now October 31, with borrowers eligible for a break of up to six months.
Homeowners will now also be able to make reduced payments if they don’t want to take a full payment vacation by extending the term of their loan, the government announced.
But how does the scheme work? Are you approved for a mortgage vacation and what are the consequences if you take one? We take a look below.
The deadline for applying for a mortgage repayment holiday has been extended to October 31
How can I get one?
A payment vacation can be offered to anyone who asks for it, and borrowers who fall short of obligations should be treated the same way as those who are up to date, the Financial Conduct Authority says.
This means that you do not have to be in arrears and in most cases you do not need to show evidence of financial difficulties to qualify.
However, you may need to provide a brief description of your circumstances, the details of the loan, and confirm that you are struggling to keep track of the repayments.
Then you will be asked how long you want to take a break and when you want it to start.
Most major banks and construction associations now have an online payment form. Visit your bank’s homepage and follow the links to coronavirus-related advice.
If you don’t have internet access or need urgent help, call your lender, but be prepared for long delays. There have been reports of customers waiting hours before they can speak to someone.
NatWest has said it will approach customers proactively, but so far it’s the only lender to announce this, so it’s important that you contact yours and not just cancel your direct debit.
Do not just cancel direct debits
Homeowners have accidentally been left in arrears by canceling their mortgage payments without speaking to lenders first.
Amid claims that borrowers waited up to 10 hours on the phone to talk to someone, many lenders asked borrowers to submit applications online to free their help lines, or to call only if they are vulnerable or face immediate difficulties faced.
But those who can’t get through and just cancel their payments without talking to their lender first will be considered a payment arrears by credit reporting agencies.
This means that they will have trouble paying off their mortgage in the future.
Anyone who has already canceled a mortgage write-off without first talking to the lender is advised to call them as soon as possible to let them know.
How long will it take before I start?
If you contact your bank by phone, ask for approval times. Timetables vary for online forms.
Nationwide says it wants to respond to borrowers, for example, within five to seven working days.
Halifax says it will respond by text within two to three business days, while TSB says it will respond by email within three business days.
How does it work?
You can request a payment break of up to six months. Keep in mind that you should only take a mortgage payment vacation if you really need to, as this can end up costing you more in the long run.
Right now, lenders offer borrowers three ways to defer their mortgage payments.
Some borrowers will be able to extend their loan, effectively adding the extra three months to the end of their term.
Others are given the opportunity to increase the mortgage loan size, but with the same term.
This means that the mortgage will be repaid in the same period, but the borrower pays a little more each month once payments start again.
However, remember that with both options, you pay interest on the amount accrued, which means that you generally pay more interest.
Another option that some lenders offer is a shorter repayment plan, which gives the borrower the opportunity to repay the debt more quickly over, say, a six-month period.
Not all lenders offer all these borrowers all of these options. Talk to your lender to find out which ones you may be able to take.
Payment holidays are normally granted on a case-by-case basis, taking into account financial difficulties and general environmental factors.
Double check with your lender that taking one now because of coronavirus will not prohibit you from asking for it in the future.
Although this does not affect your creditworthiness, an interruption of payment may affect your ability to re-enroll
Is it worth it?
More than 1.8 million homeowners took a mortgage vacation after the scheme was announced in March.
However, while the government has promised that these payment holidays will not affect credit reports, it cannot stop lenders from refusing to provide loans to these borrowers in the future.
And industry insiders have claimed that some lenders are already starting to automatically decline applications for those who have taken a payment holiday.
So think carefully about whether you want to do it and how it may affect your ability to refinance in the future.
Taking a mortgage vacation will cost you more in the long run no matter how your bank asks you to pay it back.
For example, if you have taken a three-month payment term for a mortgage that started in January this year, of £ 100,000, with a 20-year residual maturity at the average two-year fixed interest rate of 2.03 percent.
After your mortgage break, your monthly payments go up from £ 505 to £ 515 and you pay another £ 925 in interest over the term of the mortgage.
Real estate agent Habito has launched his own calculation tool with which you can find out how much more you would owe if you took a holiday on your mortgage, which you can find here.
At the moment, the calculator only works on three months instead of six months.
Habito’s mortgage vacation calculator can help you figure out how much more you would owe if you took a break from your mortgage
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