Northern Rock Payment Holidays

gelfling01

My husband and I have had a NR Together Mortgage since Oct. 2005. We took out a mortgage of £127,000 and an unsecured loan of £13,000. Our most recent statement says that we still owe £140,000 all in all.

We've used several payment holidays and had a 4 month mortgage break when I went on maternity leave. I know that the interest is added when you opt for a payment holiday but I can't believe that after 4 years of paying £798 a month - we've not reduced any of the mortgage!!! We have never missed a payment (apart from the legitimate payment holidays that we were entitled to) but am I right in thinking that these mortgage breaks have cost us dearly?

We are on a fixed rate until Oct 2010 and I am terrified that we won't be able to reduce the mortgage in time to get a better deal. I know we still have a year until the fixed rate is up but after making each payment on time every month, I thought we would have got the balance down a bit!!!

Would making regular overpayments be the way to go?

I'm really sorry if I sound a bit of a novice but this is our first mortgage together and we are a young couple with no other financial experience!!!

Cannon_Fodder

You are right. Every payment holiday has a triple whammy;

1) a repayment does not occur, so that portion remains on the capital to need interest paying on it for the rest of the term

2) that month's interest is still calculated and due, but is added to the outstanding capital

3) the new, doubly higher capital amount results in a higher interest charge on the next month, and if you have fixed payments, lower capital repayments will result for a considerable time, further accumulating interest.


I don't think there is much point in upsetting yourself that you MIGHT not make it to a better fixed deal next year,

Being the Together product, I assume this was a 100% mortgage, and although you might have had a little equity upto 2007, the crash has probably brought that back down to about breakeven - and with the unsecured element that will put you back over 100% Loan to Value. No such products exist. Any alternative lender will take unsecured debts into account. Consolidation at such levels is no longer possible.

You will therefore revert to the NR "variable rate" at the end of the term. Research what they say that will be and make sure you can afford that.

You might be lucky and be a bit better off, even.

If you have spare cash then overpay. But, if you had spare cash, why on earth did you take the payment holidays...???

Stop taking payment holidays!!!

gelfling01

Thanks for that info - I was never made aware that these payment holidays would have such a massive effect on the balance, but of course, Northern Rock probably wouldn't tell you that anyway!!!

We've only ever taken payment holidays when times have been hard - and they have been really hard, money paid out for excesses when we got broken into, car faults costing £600 etc. And I guess we would rather have taken an 'approved' break than miss a payment.

I was also told that because our mortgage term is 35 years, it will take longer to see the balance go down, is this correct?

In future, we will not take any more breaks, and we'll start trying to make overpayments when we have spare cash!

Could anyone advise me as to how much you should be overpaying per month to see a difference on the remaining balance?

Many thanks!

jacqhale

Hi, we did exactly the same thing with Nationwide when I was on maternity leave - I don't really think they explain the ultimate effect that payment holidays will have. We were a bit naive and basically wiped out years of payments:o
However we are now sorted on a 2.5% rate and frantically trying to overpay as much as possible to make up for it and get the term down as we had to extend to about 40 years to be able to afford the increased payments when we came off.

So hop over to the mortgage free board - there's some great threads you can join (try 2010 MFW's) for lots of support and also some great links to mortgage calculators where you can put in all your details and it will automatically calculate how much you save and you can play around with overpayments. FAB:T

Sorry not sure how to link to other threads but if you go they are all on the first page.

Good Luck!!

dunstonh

I can't believe that after 4 years of paying £798 a month - we've not reduced any of the mortgage!!!

You wouldnt be as the early years is when its important to make capital repayments and you keep taking payment holidays (or authorised arrears as they ought to be called).

We have never missed a payment (apart from the legitimate payment holidays that we were entitled to) but am I right in thinking that these mortgage breaks have cost us dearly?

Yes they have. Authorised arrears should be used as a last resort.

Thanks for that info - I was never made aware that these payment holidays would have such a massive effect on the balance, but of course, Northern Rock probably wouldn't tell you that anyway!!!

The lender is not responsible for providing financial advice. They will act upon your requests. There is also the expectation of common sense. i.e. if you are not paying £798 then that amount will be added to the mortgage.

I was also told that because our mortgage term is 35 years, it will take longer to see the balance go down, is this correct?

Correct.

In future, we will not take any more breaks, and we'll start trying to make overpayments when we have spare cash!

Good. However, before you start making overpayments, make sure you build up an emergency fund as that is the thing that has been lacking. Had you had the usual 3-6 months expenditure in savings, you would not have had to go borrow more money on the mortgage.

Could anyone advise me as to how much you should be overpaying per month to see a difference on the remaining balance?

How many months have you missed in total so far?

You should take a look in the debt free wannabee board as they are very good in there at helping people at budgeting within their means. That appears to be a weak point for you and you could probably do with that help.

gelfling01

Hi Dunstonh,

Thanks for the advice - although we don't 'keep taking payment holidays' - we've taken 4 months when I was on maternity leave and my husband's hours had been significantly decreased at work due to the beginning of the credit crunch. Had we known this was going to happen, we would have tried saving. But like most things in life - you don't always know until they bite you on the backside!!!!!

The 5th payment holiday happened due to a break in when our car got stolen and possessions in the home - we had to pay for excesses on our home and car insurance and when we had to get a new car, this in turn affected our car insurance as it had increased due to the claim, even though we were not at fault.

The 6th payment occured when the gearbox went on the automatic car we own - that was a really large job and set us back about £1000. Obviously your suggestion of emergency funds is a great one and something we should really do so that we can avoid using payment holidays in the future.

We do have common sense, otherwise after every 9th consecutive payment we made, we would have opted for a holiday!!! We have only ever used these payment holidays when we've had no other option.

So all in all we've used 6 payment breaks. At the moment we aren't in the position to be making large overpayments but I would like to be able to put aside something so that we can get our balance down.

We are very sensible when it comes to finances as a rule - we have just cleared 2 loans at £10,000 so I know we have the will and determination to start making overpayments and we never really splash out on luxuries - I think that its the large mortgage amount that we owe that feels like we've got a gigantic mountain to climb!!!!

b0rker

It seems like you have a £127K mortgage with a £13K unsecured loan and a house that is probably worth £140K so to get your loan down to only a 100% mortgage you would need to find £13K.

Then you would need to find roughly another £19K (£32K in total) to get down to £108K so that you could secure an 85% LTV fix. That 85% LTV fix is unlikely gain a better rate than the NR SVR which currently stands at 4.79%. To get down to 75% where the fixes are more desirable you would need to find another £13K (£45K in total) to get your outstanding balance down to £95K with your house at a value of £140K.

I think your best bet is to save what you can now and hope that house values increase over the next year therefore reducing your LTV.

Who knows the NR SVR may stay at 4.9% for the next 3 years, giving you a reasonable amount of time to overpay your mortgage and get yourself a decent LTV so you can secure a desirable fix.

I would not bank on that happening however and you need to take what action you can now.

gelfling01

Hi b0rker,

Thanks for that information - not sure how we'll managed to overpay by £45k over the next year but we're going to do our best to overpay each month and hopefully we'll start noticing a change when our statements arrive!!

You're right about the house price - unfortunately its not gone up in price by much since the market crashed so we have barely any equity on the house - sometimes I wish we had rented from day one, but then again, at least we will be able to leave something to the children - I just don't want to leave them with our debts when we die!!!

I'm taking on 2 jobs at the moment so we should be able to afford about £400 a month extra to go towards the mortgage. I think I'll head over to the debt-free wannabe forum and see if I can get some advice there too!!

Thanks for everyones help - you've all opened by eyes financially!!!

Joe_Bloggs

Is it possible to see how much you owe, online, each day, with a Northern Rock mortgage?
I tried asking customer services but the were no help.
J_B.

podgerjones

Payment Holidays? "you don't get owt for nowt." Never taken one, never will. Would rather not eat than take a payment holiday.

dunstonh

Your payment holidays have meant you have effectively borrowed 6 x £739 making a total of £4434. That then gets interest added to it each month as well.

I dont have a repayment table for 30 or 35 years but looking at one for 25 years, it shows that at 5% interest rates, in the first 5 years you only repay £116 out of every £1000 borrowed. So, with the capital reduction being much less on a 30/35 year mortgage, you have effectively borrowed a similar amount to what would have been repaid.

I know you may have had issues that caused them but 6 missed payments in 4 years sounds pretty bad. They may have been authorised by NR but looking at it based only on the info posted on this thread, it doesnt paint a healthy picture.

The fact you have cleared 10k of loans though paints a better picture. as long as you havent shifted them onto other debts And the fact you now realise the issues with these "holidays" is also good. So, I think we can put the "telling off" to one side now

Payment holidays are really an absolute last resort. You end up paying 2.5 to 3 times what you didnt pay that month. i.e. that £739 missed each month will end up costing you around £2100 for each missed month.