We’re all going on a Mortgage Holiday

I decided to opt-in to the government’s mortgage holiday scheme. It’s just been extended for another 3 months meaning that I’ll have avoided 6 month’s mortgage payments and “saved” myself about £4200.It’s a no-brainer really.

 And a million and a half other people have joined in the fun. Think of it like when rain stops play a Wimbeldon – do you let that get your down or do you join in a singsong with Cliff Richard? I know what I’d do!

Just like any holiday, you should live for the moment and forget about the future. You are on a Mortgage Holiday – what could go wrong?

Unless you think about it

The downside is that this is not “free” money (only an idiot would think that) and you’ll end up having to pay it back with interest in the future. This could be an extension of your existing pension repayment date or a hike in your monthly payments.

The other mysterious downside is what happens to your “credit rating”. This is a bit like your sex appeal or coolness – you may think that you are god’s gift to the lender but they might just not like the look of you. Based on the invisible aura of your credit rating, you can pay more or less for borrowings.

In general it’s better to pay less for your debt and a 1% difference in borrowing is £1000 a year on a £100,000 mortgage. The debt hangover can last a lifetime!

GFF’s recent credit rating shame

I thought that I had a good credit rating. Continuous employment for 15 years, homeowner with no bad debts (ever!), I’m on the electoral roll for goodness sake – I’m a safe bet when it comes to debt. Or so I thought.

I recently had to quickly borrow £15,000 for an investment. The investment has since paid off and I’ve paid off the loan but I was amazed that despite being regularly offered loans with “typical APRs” of 2.9%, the best that I could be offered by my own bank was 10.8% APR for £15,000 over 5 years. I even jigged things around to get the rate that low.

This was a bit of a shock to me as the same bunch offered me a mortgage at 1.79% a few years back and I’ve been with them for almost 20 years.

Other loan providers gave me even worse offers.

I was shocked and embarrassed – but since I needed the money fast, I took it, invested it, made some money and paid it back and in total incurred £60 of interest charges (equivalent to the full loan being drawn for 2 weeks – even though it was supposed to be over 5 years).

Throwing caution to the wind

It’s possible that despite some comfort being given that the corona virus mortgage holiday not affecting your credit rating, it might actually.

But despite the recent scare with my own credit rating, I am going to grab another 3 months of mortgage holiday. The overall mortgage interest cost will be higher but I reckon that the return on investments will be better than 1.79%. In any case, I probably have the resources to eliminate the mortgage in the future if I want to or at least bung enough money in when it comes to renew the deal in 3 years time to get a good mortgage rate.

Furthermore, my own work situation is far more precarious right now than worrying about credit rating. And my own thoughts about the future of my money seem to be a bit manic depressive lately.

Finally, deferring payment of mortgage interest actually improves my FI numbers since less money is diverted from money now into mortgage equity.

Have you decided to (ab)use the mortgage holiday or are you far to sensible to get caught up in all that?

Let me know.

Thanks, GFF

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17 comments

  1. Not used the mortgage holiday (but would if I had one)
    I cannot agree more with the surprise at finding out the IR that my own bank would lend to me. Especially after how loyal I’ve been to them!

      • Yeah that is understandable. I wonder if this plays into the current financial services problem of rewarding ‘new joiners’ better than those who’ve used them for a lifetime…

  2. One caution about mortgage holidays, they will likely make future refinances more difficult to obtain or at less generous terms.

    Your credit rating gets dinged, and you subsequently need to tick one of the “yes” boxes in the credit history section of the mortgage fact finder documentation. That is the same risk assessment section where people ‘fess up to having been bankrupt, turned down for loans, missed repayments, or been on the receiving end of a CCJ.

    Mortgage holidays can provide some valuable breathing space for those who are temporarily having trouble making ends meet, but can potentially can do more harm than good for everyone else.

    Good luck with the precarious job, hopefully things work out the way you want.

  3. I (kinda) wanted to do the same, but wife is against it. Whilst we have been a little affected already- we haven’t massively. She thinks continuing to pay the mortgage in full is the best course of action. TBH- she’s probably right, and even 3/6months worth of payments invested aren’t that much in the grand scale of things….. maybe.

    • For us – £4000 is one year’s LISA allowance or 6 month’s mortgage payments.
      Potentially your could pocket the 25% extra and use that to pay off the mortgage when the time comes.
      Just another way to think about it

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