Santander Mortgage holiday - adding interest

deegee1971

I just called Santander, and while they agreed to a 2 month holiday, the only options involved adding the payments and consequently adding interest.
So, my monthly payment would increase by £6. Not much, until you factor the 236 months I have remaining meaning they make an extra £1400
Is this the way they're supposed to be doing things? 

Thrugelmir

The holiday is simply a deferment not a giveaway. Non payment will result in accrued interest charges. As you are not paying either capital or interest. Once the holiday is over. The balance owing on the mortgage will determine your monthly payments over the remaining term of the mortgage. 
Should this cause financial hardship then one would expect lenders to revise mortgage terms, i.e. extend. To make monthly payments more affordable. 

deegee1971

Thanks for your reply.
Yes, I wasn't expecting a giveaway, but I did imagine that the unpaid months would be just tagged on to the end, or spread across the remaining term evenly. I wasn't expecting my lender to use this as a money-making opportunity

[Deleted User]

They're not using it as a money making opportunity - they're just ensuring you pay the contractual amount, while allowing you a non-penalised break in payments.

deegee1971

OK, my initial figure was wrong, but as my mortgage is £609 per month (2 month = £1218) and they want to add £6 per month to the remaining 236 months (236 x £6 = £1416). Surely they're still making an extra £198 out of the crisis? Or am I missing something?

[Deleted User]

Yes.  You're missing the interest that's being incurred by spreading repayment of the missed payments over another 236 months. 

Remember you're still borrowing the money, but just choosing to take longer to repay it.  That will always increase the interest payable.

deegee1971

Surely the interest has already been added to what I've already borrowed?
In essence they're not offering to anything more than lend more money with interest, which is what they do as a bank anyway (to make money).

Thrugelmir

The £1,218 you defer paying will incur interest until it is settled. As @Deleted_User says that's over 236 months. Look at your budget and find non essentials to cut out. Cheaper phone contract for example. Then overpay your mortgage. 

[Deleted User]

No.  It's surely not. 

Interest is calculated on a daily balance.  They can't calculate it beforehand because you may choose to make overpayments - or in your case, underpayments.  Monthly payments will be based on what will happen if you make all your payments on time - not if you don't.

What they're offering is for you to breach your terms without penalty.  It's simply offering more flexible terms than a mortgage provider would not normally offer. But the interest is determined by simple maths.  The more you borrow, the longer you take to pay back - the higher the interest.

And remember you're keeping hold of your money for 236 more months, meaning you'll earn whatever interest you're getting on that cash.

deegee1971

I do understand that's how interest is usually calculated.
But that makes it sound like they're being magnanimous by 'allowing' me to breach terms. The government have literally told them to do it.
And they will make money from the situation, because they have lent money / offered more flexible terms, which they will charge additional interest on. All seems like a great deal for the lenders

[Deleted User]

They're really not making additional money. If you repaid it, they would be lending it someone else.  

They just don't want to make a loss, which is understandable