How Mortgage Payment Holidays Can Help With Budgeting

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March 29th 2020
Tax Week 52
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How Mortgage Payment Holidays Can Help With Budgeting

Chancellor Rishi Sunak says lenders will allows people to take three month payment holidays from their mortgages. Here is a calculator to help.

Head on over to TheMoneyCalculator's Mortgage Payment Holiday Calculator to see how much of a difference taking a payment holiday could make to not only your short-term finances (no longer having to make a mortgage payment), but also the effect on the remaining balance and what happens to your monthly repayments when you start making payments again.

Three months appear to be the max at this stage that the government has signalled that the public can ask their mortgage lenders to halt their mortgage payments. Depending on how the lenders implement the freeze, whether they continue to charge interest during the freeze or not, or how they recalculate the monthly payments is unknown at present.

The most common scenario for payment holidays has been implemented by the website, TheMoneyCalculator.com where interest is charged but frozen at the amount at holiday stage and then when payments resume the balance is recalculated and amortised over the original remaining term.

The net result of this is a mortgage balance increase equivalent to x months of interest as well as the now frozen original capital balance. Resuming without increasing the original remaining term, and thus with the mortgage concluding at the original stage/offer ends etc means the monthly payment goes up - but this depends on the original term, loan amount and interest rate.

It's an interesting tool and helps with trying to budget with the scenarios as they are at present and we hope it helps.

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