Payment Holiday Query?

mortgageconfusion

I have a fixed rate with Northern Rock until April 2011 when I will be leaving and moving to a different lender.

I have the chance to have a three month payment holiday before I leave which will save me about £3900 (my mortgage is £1300 per month). They have told me that the interest charge will be added to the loan for the period adds up to £2800.

On the face of it I look like I have £1100 in hand at this point as my settlement figure only goes up by £2800 when we finish.

I asked if this put us in arrears. they said no

I asked if this affects my credit. they said no.

I asked if this was a loophole and if I was correct in my calculations. they said yes.

I am wondering what I have missed here as I cant see any reason not to do it?

Can anyone help?

beecher2

Do you have a repayment mortgage? If so you'll not have paid the £1100 off the capital which you would without taking the break. This means your outstanding debt in April 2011 will be £1100 higher than it would be, plus you will pay additional interest in the remaining time.

mortgageconfusion

yes it is repayment. I thought the capital had to go somewhere and couldnt see an advantage of doing it. they just tried to tie me up in knots when I called as I asked how the capital is affected and they said it wasnt!!

Essentially then if I took it I would not pay them £3900 but I would pay on the settlement figure the £3900 I hadnt paid plus interest.

Any ideas what that likely to be. They quoted £921 per month on the phone that would be added to the loan so three times that if its a 3 month break.

surely If i did it the settlement would not go up by £3900 plus 3 x £921 as this would be extortionate.

confused!

beecher2

No it would be 3 x £921 plus a small amount. The £1100 wouldn't be added to your settlement, it just wouldn't have been taken off the capital outstanding as it would be if you hadn't taken a holiday.

Short answer is - don't take authorised arrears unless you really need to as it will cost you money.

luckyfool

Despite what they say, taking an authorised payment holiday may well effect your credit score. They will show on the credit file and other lenders/credit providers can do what they want with their credit scoring. i.e. Most may well penalise your score if the credit report shows a recent payment holiday or authorised arrears on a mortgage or other credit, for obvious reasons. i.e. It could be a sign of financial stress, redundancy, profligate spending, inability to manage finances, and could correlate with customers who may go on to default on credit agreements.

Unless you had a very very good reason for it, I would steer well clear of payment holidays.

mortgageconfusion

Thanks for that. Nr did say that it was a feature of my mortgage and that it wouldnt affect my credit rating or show up anywhere when I queried it.

surely that cant lie about it on the phone as its all call recorded?

luckyfool

Are you willing to rely on the advice given by NR callcentre staff being 100% accurate given the stakes? I generally assume that about 25-40% of what I am told on the phone by call centre staff is wrong, and if its something very important I will often callback and speak to several different people to try to set my mind at ease. It's frightening how often I get 3 or 4 different answers to the same question from Banks or building society's. Get a copy of your experian or equifax report and see how much more information they show these days. They show balances on your current accounts, how much you paid each month to your credit card, credit limits, when the limits changed etc. I would be extremely surprised if NR did not report to the credit reference agencies that a zero payment had been made to your mortgage for 3 months (probably with a flag marking them as authorised payment holidays). If they do, there is nothing to stop other providers choosing to mark you up or down accordingly. If you feel like being a guinea pig then please try a Credit Expert Trial and take the payment holiday (monitoring your credit file for the 3 months) and see how it shows up. It could be that the NR call centre member of staff is right, but I would not count on it.

mortgageconfusion

I am just about secure my new mortgage now that will start on May 1. As my new mortgage will be agreed before xmas with a new provider if i take the payment holiday in feb/mar/apr the deal will have already gone through and need to honoured

right or wrong?

luckyfool

Wrong. Many lenders do a new credit search/score before releasing funds, especially if several months have passed. It's unlikely, but its been known to happen for offers to be withdrawn at that point if your circumstances/credit score has changed.

BadgerFace_2

Essentially, what you are doing is increasing your mortgage, by £3900...meaning not only will you continue to be charged interest on the £1100 you haven't paid off, but also interest on the interest that you are adding to the loan. You are basically writing off a years worth of capital repayments!

Jaybee5

I took a 3 month payment holiday with NR 3 years ago whilst on maternity leave so that I could extend my time off. There were no adverse effects to my credit report. The only consequence was the addditional cost.