Coronavirus, Mortgage Payments And Credit Score

 

If you are reviewing your finances in light of the coronavirus, you will be considering your mortgage payments and your credit score. Please review the following information which will help you make an informed decision.

How does a mortgage holiday work?

If you decide to take a mortgage holiday, you must know how this will impact your payments in the future. There are generally two options to make up for the mortgage holiday, which are:

  1. Spreading the missed payments over your remaining monthly mortgage payments
  2. Increasing the length of your mortgage term by the length of your mortgage holiday

In the last example, if you have 12 years left on your mortgage, and you take a three-month mortgage holiday, you will have 12 years and three months left when your mortgage resumes.
Your lender will likely decide which option is most suitable for you. At the moment, it appears as though spreading the cost of missed mortgage payments and the additional interest over the remaining mortgage payments is the default option preferred by lenders. However, be sure to discuss this with your lender to ensure you know what option has been selected.

Other payment holidays on offer

While mortgage holidays are the most commonly discussed form of payment holiday, it is possible to arrange a payment holiday for loans and credit card payments if required. If you are struggling financially, and need additional assistance, you can request a payment holiday.
As with mortgage payment holidays, you must agree on a holiday with your lender or credit card provider. If you fail to notify your lender and stop paying, you run the risk of damaging your credit score and creating significant problems for yourself.

It is unlikely you will need to prove you are struggling. At this time, most lenders aren’t asking for proof that people have been negatively affected by coronavirus for them to provide a payment loan.

However, people should be aware that a payment holiday is not free money. It must be repaid, and there will be additional interest to pay. Taking a payment holiday will cost more in the long-term, even though the short-term relief will be of significant benefit to many.

If you already have significant debt problems, your lender might decide against offering you a payment holiday. Similarly, if the lender believes your job is at risk and will not recover when people return to work, they might decide against offering you a payment holiday.

Will my credit score be affected?

If you agree on a payment holiday with your lender, you should see any adverse impact on your credit report. New credit-reporting guidance allows for an “emergency payment freeze”, crafted concerning the coronavirus. It is always a good idea to arrange confirmation with your lender, but for the majority of people, a payment holiday will not be recorded on their credit score.

Applying for a mortgage is the last thing many people are considering, but for some individuals and households, now is the right time. Mortgage lenders are still active, so anyone interested in arranging a mortgage, should prepare themselves for the process, and speak with industry experts.

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