Mortgage payment holiday the real cost?

Emmaw_3

Hi Everyone,

I am due to go on maternity leave and I am considering taking a 6 month mortgage payment holiday to allow me to take extra time off, we can't survive on the one wage. I want to find out how much it will really cost me. I am with the halifax on a fixed rate of 4.39% (which is due to run out in july) if I take a 6 month break (Jan - Jun then renegotiate) how do I work out how much interest I will accrue hence how much it will cost me to do it.

Any ideas??

motch

One thing to consider is that your mortgage rate is very low for the next 6 months (which is good). When you come to remortgage it's going to be nearer to 6% the more you can pay off now the better.

poppy10_2

Depends how much your mortgage is.

silvercar

A mortgage holiday means that the interest still accrues even though you don't make payments. Not paying an interest only mortgage at 4.39% for 6 months means that your total outstanding amount will increase by 2.195% of your outstanding amount (for a 100k mortgage = £2,195, 150k = £3,293).

Emmaw_3

Thank you very much for you advice,

Our mortgage at the moment is £74K and is a repayment mortage we pay £477 a month so if I have worked this out correctly, 2.195% of this would be £1624.30.

So in order to save the 6 month of payments (£2862) it will cost us £1624.30.

Childcare over the equivalent period (£600 a month) is £3600 so it looks like on the face of it, it is not a bad move as the cost of the payment holiday is significantly less than the cost of childcare. Would you agree??

silvercar

If you can't afford to make the payments while not working and your work/ life balance suggests you will really feel the benefit of taking this payment break, then it is far better to use this mortgage holiday facility rather than get behind on other bills/ credit cards or worse mortgage arrears.

That said, although your calculations are all correct, you are missing 6 months of capital repayments on your mortgage. So your mortgage repayments will either have to increase to make up for the capital not repaid during the mortgage holiday or the length of the loan extended.

In your 6 months of payments, you would have reduced the outstanding capital by £1237.70. This amount will still be in your mortgage outstanding amount.

Roughly speaking, increasing your mortgage amount by £1624 and paying it back in the original timescale will mean your repayments increasing by £18 a month over the whole length of your mortgage. Extending your mortgage term by 6 months and adding the £1624 to the capital amount would increase your repayments by about £11 a month.

All these calculations are based on your current interest rate of 4.39%, come next July you should probably budget for an increase. (But this would be happening with or without the payment break.)