Mortgage holiday but still paying interest - good idea?

7sefton

Hi.
I’ve got a residential mortgage with consent to let (as I’ve moved to another city for work). Tenants have given notice to move out in two months, but I could easily keep up the repayments (roughly £500 repayment + £220 interest each month).
To give myself a bit of breathing space, I’ve successfully applied for a three month mortgage holiday and will be paying the £220 interest every month throughout this holiday. In my head, this preserves a bit of a cash each month and won’t leave me in a ‘worse’ position when the holiday comes to an end.
Is this right, or am I missing something? Surprised at the negativity mortgage holidays are getting on this forum, because surely by paying the interest I am protecting myself from paying more when it’s all over?
Thanks for any thoughts.

7sefton

Ps. My mortgage rate is very low, and I earn more from my savings accounts (mix of fixed bonds and lots of regular savers, averaging about 2.5% vs mortgage rate of 1.69%), so the money I’m not repaying on my mortgage every month is earning more in savings). 

Wkmg

I think you’ll pay £660 pounds more over the term of the mortgage than you would if you didn’t take the holiday. Do you need the money that much? If you’re fine financially without the mortgage holiday what benefit do you get? Does having £1500 in your current account mean that much to you (presumably £660 doesn’t). If you need the cash to survive, do it. If it’s just so you can have the money in your bank, what’s the point? Are you even earning less than normal? You haven’t said. 

7sefton

Thanks for the quick reply - but can you explain why I’ll pay £660 more? I’m paying the interest, so effectively my debt isn’t growing? It’s just remaining the same? A bit like having an interest only mortgage...?

Wkmg

For 3 months you’re paying the interest without decreasing the balance on the debt owed. Effectively you pay £220 a month to stand still and what you owe then at the end of the 3 months will be as if no time had passed (minus 3 x £220). You’re effectively switching to an interest only mortgage for 3 months. 

Wkmg

Just to be clear, the longer you have an interest only mortgage the more interest you pay. You are paying interest for 3 months longer than you would have without the holiday. Where do you think the money comes from? The bank aren’t going to gift it to you and neither are the government. The interest on the debt for the extra 3 months has to come from somewhere (you!).

7sefton

Thanks.
One more thing: if I plan to move house in a few years (ie never actually complete the mortgage on this property), will this still mean I’m worse off? Ie I effectively pay the mortgage off early, so there isn’t three months to add to the end of the term?

7sefton

I still think I’m better off taking the mortgage holiday because the money I don’t put towards the mortgage (£500x3) can be saved and earn a higher rate of interest than my mortgage. This is correct, right?

MovingForwards

Your mortgage will be recalculated when the holiday is over, the sums not paid will get added back in and your monthly payment will increase to ensure the whole mortgage is paid within the term you agreed to when taking the mortgage.

Not all lenders are extending the term by 3 months.

Wkmg

Do you honestly have a cash saving account with instant access that you get 2.5% interest in with no penalty for withdrawing the money? You’re very lucky! If so then taking your mortgage interest into account you make £12 a year? Is that really worth it to you? All the hassle + hoping it has 0 effect on your credit file if you ever want to switch your mortgage.