Mortgage freezing impact – What will happen once the freeze period is over? – Part 2

 Mortgage freezing impact – What will happen once the freeze period is over? – Part 2

Mortgage repayment freezes were largely embraced by homeowners when they were introduced in March 2020. The freezes allow homeowners to take a vacation from paying their mortgages while funneling money elsewhere during the COVID-19 pandemic.

Initially, mortgage freezes were set to end in October 2020. The end date was extended, however, with the rise in coronavirus cases during the autumn. mortgage freezes were extended until July 2021. The impact of the freeze has already been felt by some homeowners. Many of which were unintended consequences that were not foreseen nearly a year ago when the mortgage freeze was introduced.

What unintended consequences will the mortgage freeze create?

One of the unintended consequences already being seen by individuals is an inability to borrow money from financial institutions. Some financial experts are telling clients not take mortgage payment freezes, because delaying payments will come back to hurt them in the future. Many homeowners have used money that would have gone to pay back mortgages to make payments on cars, credit cards, or for holidays.

Homeowners were promised the mortgage repayments would not affect their credit file. It was touted as a no-risk option to help get through the COVID-19 pandemic. Individuals that have taken out mortgage freezes have already been denied loans. Financial institutions are already denying individuals who took mortgage freezes over fear that the money won’t be repaid.

Loan denials could just be a short-term effect. Once the pandemic is over – or diminishes greatly – banks may be more willing to accept loans. Although accepting a mortgage freeze is not intended to hurt your credit history, it can prevent a financial institution from loaning you money, according to the Financial Conduct Authority (FCA). It is a fine print detail that leaves the final decision up to the banking institution as loan applications ask whether a potential borrower took out a payment holiday.

Paying back a deferred payment

Homeowners that took payment holidays will see an increase in their monthly mortgage repayments upon completion of the vacation period. The shorter the time left on your house mortgage, the larger the monthly repayments will be. This could be crippling to some individuals, especially if they lost their job and are struggling to refinance their mortgage or sell their home. The longer the term on an individual’s mortgage, the repayment increases will be lower – but will still be felt.

You may extend the length of your mortgage following the thawing of the current freeze. You may see small increases in the monthly repayments if you are able to extend the term of the mortgage. Not everyone will be entitled to an extension. An extension on your mortgage’s length could be an option if your financial future is unknown. A longer mortgage term will mean you pay more money in interest, however.

The impact of the mortgage freeze is already being felt by some homeowners. The full impact of the freeze won’t be known for quite some time as more people end their repayment freeze. While it doesn’t feel like the impact will be as great as the World Financial Crisis of a decade or more ago, it could feel the same for some homeowners.

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