Mortgage holidays uncovered

Keeping your roof over your head is probably your number one financial priority but sometimes keeping up with mortgage repayments is difficult. Maybe you have just finished a contract, earn irregular amounts of money or are living in fear of redundancy, as 700,000 Brits are at the moment.
Some mortgage lenders allow you to take a break from your payments if your circumstances suddenly change.
Taking a holiday from your mortgage repayments certainly gives you a breather for a few months if that keeping that roof aloft begins to look a bit precarious, but to ensure your next intake of breath isn't a sharp one, beware of the pitfalls. Missing payments can have a huge impact on future payments and the size of you overall mortgage.
A startling 1.4 million mortgage holders believe interest is frozen during payment holidays and 6% of them think it's completely free and they'll incur no penalties whatsoever. The reality is a whole lot more sobering.
The average holiday people take from their mortgage is about four months. During that time the interest is insidiously gathering pace in the background. At the end of the four months, the average monthly repayments will increase by £26 but not only that, the overall outstanding amount of the mortgage rises by £3,436. This can be a whole lot higher depending on the actual amount of the mortgage loan of course.
You may also have read about the government's new Homeowner Mortgage Support Scheme? This can add heaps to your long-term mortgage debt too - even although you don't pay interest for two years. Here's how...
The Homeowner Mortgage Support Scheme offers cash-strapped mortgage customers a two-year freeze on interest repayments. Through the scheme you will be able to agree a reduced monthly payment with your lender. The amount it is reduced by will then be added to your mortgage, that you will pay back later. You don't pay interest on your new reduced monthly amount but it appears that interest will be charged on amount that's deferred. So of you take the whole two years at the reduced rate you could end up paying significantly more interest on your mortgage overall. The government will step in and compensate your mortgage lender if you can't make the payments or are unable to at a later stage.
Once you are able to make payments once again the government will step back while you get on with paying back a potentially bigger mortgage - scary! Not every lender will offer this government backed scheme either, at the moment about 70 per cent of the mortgage-lending market has agreed to support it, 'in principle'.
The Homeowner Mortgage Support Scheme could push homeowners dangerously close to negative equity
For homeowners with less than 25% equity in their property, the costs incurred from a payment holiday coupled with falling property prices could push them into negative equity.
Here's what will happen to one couple from Liverpool based on ;
· Them taking just one year's mortgage payment holiday.
· Their home dropping in value by 15 percent (the amount predicted by analysts).
CASE STUDY
Carol and Geoff Harper's house is worth £200,000. Their mortgage loan is for £180,000. So, they own 10 percent of their home at the moment. In one year, the 15 percent estimated drop means their home will be worth £170,000.
If they add on the £10,000 they plan to defer on their mortgage that then means they owe £190,000 on their mortgage, but their home is now only worth £170,000 and they owe £190,000 so they will have negative equity in their home. They owe more on their home that it's actually worth. Maybe not a problem if they don't intend to move but Carol and Geoff probably wouldn't be able to remortgage in future.