Advise re payment holiday/credit card

kerron7

Hi,

Thinking about taking a mortgage payment holiday for 6 mths in order to clear the credit card, this would add an extra approx £15 to monthly payments. At the moment although the min payment is £25 i pay £100 as the interest free period ends in may 09 but its still going to take 4 years to pay, not sure what it would be if i just paid the £25. I would free up £85 by doing this just wondered if i could have you thoughts please.
xx

kerron7

Just thought i'd BUMP this thread

amyandjon

hi how much would holding on mortgage save you how much is the credit card ?

kerron7

If i had a payment hol for 6 mths i could save £4k + the payment i already pay on it would clear the balance leaving me around £85 better off, which i would then tackle the OD's with.
xx

Tiglet

Hi Kerron,

It's impossible to say what would be your best approach from what you've posted so far. There are pros and cons to what you're suggesting, and what will turn out to be right depends on your circumstances.

I'm sure you've arrived at this approach as the best option available, but what I would suggest is to post a full Statement of Affairs (SOA). This lists all that you've got coming in and going out. It can be a bit daunting to do but, once you've done it, and will allow all sorts of people to come up with lots of ways to arrange things better.

In the meantime, start keeping a spending diary. That means keeping track of every penny you spend. These are amazing for finding all the little things that waste money and just by writing it down you start questioning whether you need things. Even if you can only save a fiver a week, that's £250 a year, or about nine months off the time to repay your credit card! (there have been a few posts while I've been writing this, so that might not be quite right, but I'm sure you get the idea...)

Good luck - you've certainly come to the right place to help sort this out :beer:

barnaby-bear

kerron7 wrote: »

If i had a payment hol for 6 mths i could save £4k + the payment i already pay on it would clear the balance leaving me around £85 better off, which i would then tackle the OD's with.
xx

If you 'save' 4k in payments now by not paying the mortgage that 4k will go on the end of your mortgage and you'll pay interest for the rest of your mortgage so if you've 20 years left and are paying 6% you'll pay back about 13k for that 4k. Of course inflation will erode that somewhat but borrowing over a long period even if the interest rate is lower isn't that cheap...
http://www.moneychimp.com/calculator/compound_interest_calculator.htm

Overpaying a mortgage by 50quid a month on a 25 year 100k loan will save 16k - the power of compound interest works the other way if you underpay.... http://www.whatmortgage.co.uk/calculators/fleximortgage.html

kerron7

Hi,
We are on an interest only mortgage fixed for 7 years also the 4k gets spread over the rest of the remaining term hence the extra £15 per month not sure if this makes much difference. xx

Tiglet

If you've got an interest-free period until May 2009, I certainly wouldn't consider any extra borrowing (such as taking a payment holiday) to pay it off until at least then, as you'll be paying more interest than you are now.

In general, it makes sense to throw as much money as you can at whichever debt has the highest interest rate, and just pay the minimum on everything else. Then, as you clear each debt, use the whole of the money you save to pay off the one with the next highest rate. That way you pay everything off as quickly as possible and pay the minimum amount of interest.

barnaby-bear

kerron7 wrote: »

Hi,
We are on an interest only mortgage fixed for 7 years also the 4k gets spread over the rest of the remaining term hence the extra £15 per month not sure if this makes much difference. xx

So if your fixed term is seven years you won't be paying any off the 4k so in 7 years it will be 5.8k (assuming 5.5% fixed rate). Then at the end of 7 years you have to pay that 5.8k off over the remaining unknown number of years... lets say 10 - which assuming 5.5% again will cost around 7.5k... if it's 28 (assuming a 35 total term) that's 13k... all depends on the timescales, and if you ever catch up and overpay in the future - you are essentially borrowing from yourself and your ability to save to pay off the capital on the mortgage - mortgage companies like payment holidays as they make them money. Borrowing money over a long time at low interest rate can mount up...

kerron7

I can't get my head around it really. I'm not borrowing any more money just deferring payments for 6 months & the 4k will be spread over the remaining 288 mths so its costing £15 extra. I will be on interest only for the term of the mortgage as i understand i won't be paying any more than i would if i carried on normal payments. am i wrong, have i gone nuts?

barnaby-bear

kerron7 wrote: »

I can't get my head around it really. I'm not borrowing any more money just deferring payments for 6 months & the 4k will be spread over the remaining 288 mths so its costing £15 extra. I will be on interest only for the term of the mortgage as i understand i won't be paying any more than i would if i carried on normal payments. am i wrong, have i gone nuts?

288 x 15 = 4320

BUT the mortgage company will be charging interest on the money over the break and until it's paid off.... the point is you will be paying more but whether it's worthwhile is another matter because you aren't paying off any interest during the holiday your mortgage is increasing...... that 4k is the interest on the money you borrowed so by not paying it off you will owe more to accumulate interest over the whole mortgage...