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Mortgage holders warned payment breaks to prove costly

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STRETCHED borrowers who are forced to take a six-month mortgage payment break have been warned that thousands of euro will be racked up in interest payments.

The outbreak of Covid-19 has meant hundreds of thousands of mortgage holders have found themselves out off work. Others have had severe pay cuts.

The banks, non-bank lenders and credit service firms, that handle loans owned by vultures, initially reacted by offering customers a three-month break on their mortgage payments.

This is now being extended to six months.

The payment breaks will not show up as a negative on the official Central Credit Register, or the Irish Credit Bureau database.

However, interest will still accrue on the mortgage during this time, with experts saying this can be sizable in many cases depending on the loan amount outstanding and the term left on the loan.

An analysis by Bonkers.ie shows that some mortgage holders could end up owing thousands of euro in interest to their bank if they take up the offer of a six-month stay on their repayments.

Daragh Cassidy of Bonkers.ie calculated that a family with a €200,000 mortgage would rack up a €2,600 bill on their mortgage during a six-month payment break period.

This is based an interest rate of 3.2pc for the entire remainder of their 25-year term.

He said that in most cases the interest built up over the payment break period will be added to the monthly amount owed, and paid off over the rest of the term of the mortgage.

“The saying that there’s no such thing as a free lunch definitely applies here.

“While the offer of six months free from mortgage payments might sound appealing to a lot of households that are in financial distress at present, people need to be aware of all the extra interest they’re racking up, which will need to be repaid.”

For a family that owes €300,000 and still has 30 years to pay off the mortgage, the interest bill built up during the six-month payment break will amount to €4,300, Mr Cassidy said. This is based on a 3.2pc interest rate.

“In most cases the extra interest won’t be paid in one lump sum – it will be added on to your usual monthly mortgage repayments after the six months are up and spread over the rest of your mortgage term.

“This means many people may not notice that much of a difference. However, it all adds up.”

Over 65,000 mortgage payment breaks and over 22,000 SME payment breaks have been granted since the industry-wide payment breaks were announced on March 18.

Banking and Payments Federation chief executive Brian Hayes said the latest move was an important signal to those most affected by the economic impact of the virus.

Mortgage broker Karl Deeter said: “Unless you absolutely need a payment break don't take one, there's no point in paying interest on top of interest. The best advice is to use this lifeline only if you must.”

He said the banks are doing over 2,000 restructures every working day since the pandemic relief programme started.

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