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!!

I'm assuming you were put in this position due to furlough or redundancy and had no other choice, so unfortunately you have to take it on the chin and make overpayments when times improve for you.

The terms are generally very clear but i understand not reading them if you are desperate.

I hope your situation improves soon.

@ProfessorSlocombe genuinely got nothing from mine. As I say, I’m fortunate as mortgages are. A family business so I was prepared, but the information was not forthcoming from the lender, the letter was terrible. Maybe it is in the original paperwork, but a lot of people just don’t get how this stuff works and will have been naive about it all. It will cause problems for sure sadly. However, for most people it will be over such a long period (20/30 years) that it should only be a minor increase and not a financially crippling one.

I don’t think op thought she would be gifted three months mortgage (if only!). I think op assumed the three months would be tagged on at the end. Ie. If your mortgage finished on December 2030. It would now finish in March 2031.

Well if that's all she wants it will be very easy to arrange that (assuming she's creditworthy).

We used to have separate maths and arithmetic lessons in school. They explained interest rates etc. They should bring those back
I don't think you can bla the banks for this

You aren't the only one who believed this op. A friend of mine was getting all excited that she could have three months of no bills. I tried to explain that she would still have to pay interest but was told I have no idea what I'm talking about as I live in a council house.

She's now complaining to me that her bill has gone up.

You should know there's no such thing as free money, yes very naive! Unfortunately the 3k will probably cost about 9k in extra interest to pay off. If you are able try to make additional payments to get back to were you were before Covid.

@Toptotoeunicolour

an understandable one in a country where the education system teaches us sweet fuck all of financial use in adult life. Schools teach you the basics so you are equipped to take reasonable responsibility for your own adult life. You just can't shift the blame away from yourselves because you couldn't be bothered to inform yourself and assess options.

@Toptotoeunicolour I agree that people should take responsibility for educating themselves, but I'm not sure how that excuses the dire lack of useful life skills taught in schools (at least in my day).

I left school in 2002, having been in the top set of maths throughout and having done home economics to GCSE. Not at any point did we cover interest rates, APR, taxes, mortgages, loans, not even basic household budgeting. Sure I can work out the area of a triangle and bake a cake but since I'm not in a trade that requires either I'd rather have had the skills (or at least been made aware of the pitfalls) to navigate adult finances successfully instead of having to bluff my way through it all years later.

But this does not require arithmetic, maths, trigonometry or calculus! It just requires reading the terms and conditions (or quite possibly just the letter).

Fucking hell, there are some nasty people on here. Nowhere has the OP said that she thought she was getting 'free money' - I'm guessing she thought the missed payments would be 'tacked on' to the end of the mortgage and she would just end up paying it back slightly later.

This. Some creditors for other types of finance arrangement e.g. loans are currently allowing payment holidays without accruing extra interest, on the basis that the loan will just end three months later, so although I agree people should always read the small print, there might be reasons why people misunderstand these things.

I don't understand what some people get out of being so pointlessly nasty on here.

@jcyclops

Using the example from earlier in the thread,
If before the "holiday" you owed £300,000 @ 4% with 15 yrs remaining you would have been paying £2,218/month. You now owe £303,000 @ 4% with 14.75 yrs remaining = £2,269/month, an extra £51/month.

Doesn't this make it seem much worse than it actually is though? Because it doesn't make it clear that the 3 months saving (3*2,218) offsets most of the extra £51 per months (in fact nearly 11 years of the extra £51s are offset )

Why are the rules of compounding interest not explained in school? I

If you defer any scheduled payments, then that is added back on to your debt, so your debt continues to grow larger. You have the option of overpaying when you can to keep to the original debt repayment schedule, or to extend the term of the debt. Either way, it will cost more, because the lender is not being repaid according to the schedule. Every month you make the lender wait for repayment costs YOU, not them. The debt does not vanish....

@Howfastistoofast I think you are assuming it's way more complicated than it is, you only need to assume that the three payments you miss will be added to the capital outstanding, so to repay the new higher amount over the same period you will pay more each month. I agree totally that maths education could be more practical but that is a totally different issue to whether people can be arsed to read the T&Cs.

I think a ton of people took a mortgage break when they didn't need to on the basis of money now = more important than money later. These are the same folk who will be sadfacing in the tabloids that they didn't understand.

Because it doesn't make it clear that the 3 months saving (32,218) offsets most of the extra £51 per months (in fact nearly 11 years of the extra £51s are offset )*
All else being equal (by which I mean banks have not sought to profit from the holiday, which I think they were instructed not to), the two will offset once you allow for the fact that the £51s take place in the future (so are worth a smaller amount in today's terms) whilst the 3 x 2,218 have already happened.

Maybe it is in the original paperwork, but a lot of people just don’t get how this stuff works and will have been naive about it all

This is true, but I'm not sure how it makes it the lenders' fault
It's not as if there's lack of information on the subject, as a few seconds spent googling proves, and it's hardly unreasonable to expect that if someone's adult enough to take out a mortgage they're also adult enough to take responsibility for it

I retrained as a teacher after a career in financial services, and when I suggested adding a regular module about financial literacy into each cohort's curriculum, I was shouted down. I suspect mostly because the other teachers in the faculty could not have taught it, being equally financially illiterate.

@Toptotoeunicolour no, it's not just the 3 months capital added but interest on that too. So if is more expensive as you've borrowed another 3k over the remaining term of the mortgage and are paying interest on this for another 10 years or so.

@SummerSazz I said the three payments you miss will be added to the capital outstanding. Payments include interest plus capital, both components are added.

@Toptotoeunicolour yes, apologies 3 months payments are added but then interest continues to further accrue on these amounts until the end of the term, so much more expensive than simply the missed payments being added.

@XingMing. I think you are right. I worked as a school administrator for a while after many years in building societies. I became an informal mortgage advisor to my colleagues and often had to explain quite basic financial concepts such as APR, redemption charges and life insurance. And not just to recently qualified youngsters but to senior staff who had been on the housing ladder for many years.

I'm guessing she thought the missed payments would be 'tacked on' to the end of the mortgage and she would just end up paying it back slightly later

Even thinking that it works like that raises the very obvious question about what happens to the interest that is charged during the holiday period and then going forward, given that you owe more money than you would have, had you not taken the mortgage holiday.

I'm sure most people realise how it works but don't count on it being so much. £3000 sounds like a lot. Having said that the mortgage holiday has been a lifesaver for some who needed the money.

Having said that the mortgage holiday has been a lifesaver for some who needed the money.

The worry is that some of them may end up redundant & owing even more on their mortgages

Yikes!

'Stupid(ity) tax' is a phrase used by Dave Ramsey a money makeover guy. His method is designed to point out where you make stupid decisions. Everyone is making dumb decisions all the time! We are actively encouraged to!

I paid stupidity tax on stuff for years. I wasn't upset to hear the phrase used, it's true. It's actually a very helpful method for lots of people and definitely worked for me.

Don't take it personally, accept your mistakes and learn from them.