HOMEOWNERS who take a mortgage payment holiday because of coronavirus may have to pay £2,769 extra over the lifetime of the mortgage.
So far, 1.6million Brits have taken advantage of a break in payments, which means banks will see at least £821 million in extra interest.
For the average mortgage holder, a payment holiday saves £755 per month in suspended payments.
Most banks are offering three month holidays, which means people are skipping payments worth £2,265.
But when you take a payment holiday break, you still accumulate interest on your mortgage.
This means that after the holiday you will have have higher repayments than you did before.
How much extra you will have to pay depends on how long is left on your mortgage, and the interest rate you have.
Data from UK Finance shows that the average monthly mortgage payment is £755 and the typical interest rate is 2.74 per cent.
Money Supermarket’s Mortgage Payment Holiday Calculator says that if someone with 15 years left on the mortgage took a three month holiday – their repayments would increase to £770.
That’s only a rise of £15 a month, but over the 15 years left to pay that would cost £2,700.
The same calculator showed that someone with just five years left on the mortgage would see monthly costs go up by £42.
In total, that would mean the homeowners pay £2,520 more over the course of their mortgage.
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Mortgage brokers L&C say that using the average figures, people will have to pay an extra £2,769.
Currently, the banking watchdog is considering whether lenders should offer 12 month holidays.
While this would undoubtedly help stretched homeowners, the higher payments as a result could be substantial.
L&C estimates that on average homeowners will end up paying more than £11,016 over the lifetime of the mortgage if they take a year long holiday.
But it says these higher payments should be offset by the benefits homeowners get from a break.
David Hollingworth at L&C said: “It can’t be stressed enough that the payment holiday could be a lifeline for those whose income has been hit the hardest, but hopefully this helps to give some context that there is a cost attached.”
Anyone considering a mortgage payment holiday can use MoneySuperMarket’s Mortgage Payment Calculator to work out how much their monthly bills would go up by.
Your lender will provide the exact amount your bills will rise by during the application process.
It’s also worth considering how a payment break might affect your future mortgage eligibility.
While the City Watchdog has confirmed that mortgage payment holidays due to coronavirus will not affect your credit rating – it could still impact future finance applications.
This is because lenders rely on more than just your credit score when considering whether or not to give you a loan.
Open Banking means providers can see whether you’ve paused any payments and use this information to decide whether or not to give you credit.
Homeowners also need to be careful and make sure that a holiday is approved before they stop paying.
Research from Credit Karma UK shows millions of people haven’t contacted their creditors – despite having already missed a payment.
Missed payments impact your credit score, making it harder to get loans, mortgages and credit cards in the future.
You may also face substantial late fees if you don’t make repayments on time.
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