Beware mortgage payment holiday calculation errors – make sure you aren't being overcharged
More than 1.6 million mortgage customers have applied for a mortgage payment holiday since the coronavirus crisis started, yet while the vast majority are being told their monthly payments will increase by less than £50 once they start repaying again, we've seen a few examples of people being told their payments would double, triple or even quadruple.
Mortgage lenders are currently offering three-month payment holidays to mortgage holders whose finances have been impacted by the coronavirus crisis. Being on a payment holiday means you don't have to make your monthly mortgage payment. However, you'll still be accruing interest during the payment holiday. And while you don't have to pay it back immediately, it will be factored in to your future monthly mortgage repayments.
Usually this is done by adding up the total interest accrued during the payment holiday, then adding that to the amount you have left to pay on your home. The extra cost is then spread across your total mortgage term. Your mortgage term is the number of years left until your mortgage is fully repaid, not the time remaining on your initial fix or tracker deal (if you have one).
MoneySavingExpert.com founder Martin Lewis got a call on his This Morning slot from someone who had seen their payment go up massively, prompting him to ask on social media whether this was a widespread issue.
Most people who responded reported their payments would increase by between £5 and £30 per month. A few reported payments a little higher, though these people tended to have only a few years left on their remaining mortgage term. However, there were a few who had been told their payments would double or even quadruple...
If you're struggling to make mortgage payments due to coronavirus, check our Coronavirus Finance & Bills guide for full information on mortgage holidays and how to apply for one.
While the number of people seeing payments double or triple is small, it's a big problem if it happens to you. Here's what to do to find out if you're being charged the right amount, and what to do if you're not...
Step 1: Use a mortgage payment holiday calculator to find out the rough cost
Most people will see their payment go up by less than £50.
Your lender may provide an estimate of how much your payment increase will be when you apply, or send that to you in a letter or email confirming your payment holiday, though some lenders are waiting until repayments resume. If yours is going up by £100s or even £1,000s per month, it's worth checking that it's correct. Here are a couple of of examples of the expected impact...
Example 1. You've £100,000 left on your mortgage at a rate of 3% over 15 years
You pay £691 per month, and within that is about £250 per month of interest. So on the three-month payment holiday, you'll have an extra £750 of interest. This will then be spread over the rest of the term.
After the holiday, you'll owe £100,750 over 14 years and nine months, meaning a monthly payment of £705. That's an extra £14 every month.
Example 2. You've £20,000 left on your mortgage at a rate of 4% over four years
You pay £452 per month, and within that is about £67 per month of interest. So on the three-month payment holiday, you'll have an extra £201 of interest. This will then be spread over the rest of the term.
After the holiday, you'll owe £20,201 over three years and nine months, meaning a monthly payment of £484. That's an extra £32 every month.
As you can see, the closer you are to completely repaying your mortgage, the more you're likely to see payments going up per month, as you've less time to pay it off.
Step 2: If the calculator and the lender's figures are very different, speak to your lender
If the two figures are massively different, get in touch with your lender and challenge the new payment figure. Ask your lender to break down for you the remaining number of payments in the mortgage term, how much interest you'll accrue during the payment holiday, and how much capital you have left to pay.
If your lender has quoted you a very large monthly payment that you'd be going up to, ask it to explain how that fits in with how much you owe and the remaining term on the mortgage.
Step 3: If the lender refuses to budge and you think it's wrong, make a complaint
If your mortgage lender can't explain why your payment has gone up so much, and it won't budge from its estimate, you can ask to submit a formal complaint. Tell the bank you want to complain - you can do this over the phone, or you can email or write a letter if you prefer.
If that doesn't help, you have the right to escalate your complaint to the Free Financial Ombudsman, who will be able to decide the rights and wrongs of your case.
Please let us know if you've had an error in your mortgage payment calculation, and what happened when you challenged it.