Took a mortgage holiday and now I owe a shed load more!

[Dingdong99]

This is probably very naive of me but I had assumed that if you take a mortgage holiday, your mortgage would be frozen

I've had a 3 month mortgage holiday because of everything going on, and have now restarted again, and had a statement come through to say I owe an additional 3k!!

OP I had a similar letter this morning.
I was shocked as to how much extra interest I now owe!
Just got to get on with it and accept the increased monthly payments though, as it was better than unauthorised falling behind.

Did you not read the terms and conditions? Did you take financial advice from those people who have been complaining that "renters aren't getting free rent but homeowners are getting free mortgage" instead of finding out for yourself that wasn't true?
Do you always make the biggest financial decisions of your life this way? Genuinely surprised.

How did you manage to secure a mortgage without understanding how they work?!

Surely the 3k encompasses the 3 months of normal payments though? So 3 x normal monthly repayments + interest or whatever? Presumably it's over the life of the mortgage rather than them expecting one payment? If so, doesn't seem to bad to be honest.

The level of financial naivete in the UK is astounding - if not terrifying.

Personally I've long thought this is the sort of thing that schools need to teach - really useful stuff.

Let's not lose sight of the fact that the OP managed to get a mortgage in the first place without actually understanding how they work.

It's not hard to see why endowment snake oil salespeople were able to get away with it for so long.

Fivebrokentexts

I think the way it goes with repaying a mortgage is that they calculate the repayment over the whole period of the loan, so at the beginning when you are repaying you are initially paying them back the interest, it is only when they have squeezed out as much of the interest you owe them as they can calculated that most of the interest you have accrued is paid that you actually start paying back the capital sum. So if you are paying interest only then the amount you owe after a mortgage holiday is the original interest,plus the missing three months interest and also probably interest on the interest. But don't quote me....... I had an endowment ( though it did pay off and with a bit left over so all worked out)

I'm sorry you've had a shock but to be honest I do think this was fairly well publicised at the time, it was mentioned repeatedly on the news when the whole thing was first proposed. And if you signed paperwork from the lender, it will be explained there.

and had a statement come through to say I owe an additional 3k!!

Mortgage repayments are calculated so that you pay the same amount each month over the life of your mortgage. (This amount is recalculated as interest rates change, although still on the basis that you make equal payments over the life of your loan).

When you start repaying your mortgage, most of the repayment goes towards interest. As you repay your mortgage, the outstanding loan reduces, less interest is charged and therefore more of your money goes towards your repayment.

If you had a large amount outstanding, additional interest will have been charged, but you will be able to repay the balance over the remaining span of the mortgage.

I think a few people will be caught out by this. Martin Lewis was clear all along that a mortgage holiday was only to be done if absolutely necessary.
A few weeks ago there was a (smug) poster detailing the savings they had, spending plans they’d made and the mortgage payments they’d stashed away after taking an (unnecessary) mortgage holiday. I did wonder if she’d read the small print.

Did you think the banks were going to eat the costs for you?

It should be in your terms and conditions, they aren't going to give you free money. Which the loss of interest to them, is.

Don’t sign things you haven’t read and understood. Consider the 3k a stupidity tax

Ouch!

I don't have a GCSE to my name but my mind boggles at how some people don't get the basics, not just the OP.
You shouldn't need Martin Lewis to tell you,

Personally I've long thought this is the sort of thing that schools need to teach - really useful stuff.
Jesus Christ if they aren't spoon fed enough. It's just personal responsibility, surely.

Is there any need to so unkind? Goodness! We are all just doing our best - often in difficult circumstances - particularly at the moment! I feel for you OP. Unfortunately I -a supposedly intelligent person - am not very financially savvy and have made some very poor decisions in the past. It’s happened now try not to beat yourself up about it - it may not be as bad as you think.

Don’t sign things you haven’t read and understood. Consider the 3k a stupidity tax

I always wonder how many people would be skint if there was an arsehole tax.

To be honest I'm shocked it's £3k just for a few months in interest it obviously wouldn't be free but cripes.

Don’t sign things you haven’t read and understood. Consider the 3k a stupidity tax

Ouch!!

@notheragain4

I'm sorry to sound daft, but why is there additional interest? Why is it more than what you've initially borrowed, is it because your term is extended by 3 months? If you were to slightly over pay (basically the equivalent of 3 month) over that period, wouldn't that remove the additional interest?

It's not "additional" interest as such. Interest accrues on the loan at the prevailing rate and is added to the capital sum owing. Normally, repayments will reduce the overall sum outstanding.

In this case however, the borrower has not made any repayments for 3 months but the interest has continued to accrue. Thus the total sum owing has increased.

To be honest I'm shocked it's £3k just for a few months in interest

If you're at the start of a 25 or 30 year mortgage, you've got 25 or 30 years of interest on three months of missed payments so it would be easy enough to rack up £3k of additional interest I suppose.

What some lenders do is recalculate the length of the loan. Extend it by 3 months. So it’s really not so bad. Martin Lewis said that too! It’s what you would have paid, plus a bit more but should be spread over a longer term.

How much longer do you have on the mortgage? If at a later stage you can overpay then you can gain back the money you have spent on the break.

I cannot believe that people are taking such pleasure in another persons misery. Talk about putting the boot in. The OP made aN error - she might have had no other option. What amazing lives you must all lead where you never make a mistake.

Jesus Christ if they aren't spoon fed enough. It's just personal responsibility, surely.

Is compound interest taught to all in schools ?

No.

So what hope does someone leaving school have of "picking it up" ?

@istheresomethingishouldknow

Did you think the banks were going to eat the costs for you?

No but they might have thought the government were going to subsidise the cost as they have for other measures.

I think to be fair when the government were introducing all of these measures to reduce the impact of Covid 19 many people saw the headline and didn't read the small print. Maybe they had other things on their mind at the time like not catching virus, trying to work at home while looking after the kids, etc.

Looking at the headlines where free money seemed to be dished out it is possible that some people thought this three month mortgage holiday was a special measure where the government would pick up the financial tab, same as they are for furlough.

Looking at the headlines many self employed thought they would receive grants but they didn't qualify. Many people thought that the rules which froze evictions for 90 days meant it was ok not to pay their rent.

The devil is in the detail.

Longer term = more interesting but lower monthly payments. Shorter term = less interest but higher monthly repayments. So if your lender allow it, and you can afford it, it would be 'better' (in the sense of less overall interest paid) to increase your payments to take account of the missed months than to add three months onto the end.