Cost of deferring repayments for first 3 months?

R

rmelly

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Can anyone tell me the cost of deferring mortgage payments for the first 3 months? Assuming repayment is net 1500 per month over 35 years, as far as I can see, it means effectively borrowing 4500 extra over the 35 years, adding approx 20 per month.

Is this correct? Good or bad idea?
 
i could be totally wrong in this...

we're getting a 6 month moritorium for our mortgage and the way my broker explained it was that it's just added on, the mortgage basically just starts 6 months later so i don't end up paying anyhting more than i would have done..
 
The cost of deferring your repayments for the first 3 months should be:

total capital sum borrowed x 3/12ths the annual interest rate

This amount will be added to the capital sum which you will start paying from month 4. To estimate the total cost of repaying that amount use Karl Jeacle's mortgage calculator and enter the original capital sum borrowed plus the additional amount outlined above, the current rate and a term three months shorter than originally agreed (i.e. 35 years less 3 months).
 
Apple* said:
i could be totally wrong in this...

we're getting a 6 month moritorium for our mortgage and the way my broker explained it was that it's just added on, the mortgage basically just starts 6 months later so i don't end up paying anyhting more than i would have done..
Click to expand...
Yes you do! :eek:
 
Clubman is right....

say you borrow 500k. Then at the end of your moratorium you would owe replayments on the 500k plus the interest on that 500k over the past 3 months, so you could be starting out with a mortgage of about 506k. (Not sure of what repayments are....figure just for illustration purposes only)
 
And you would need higher than normal mortgage protection life assurance to cover the peak capital amount reached presumably?

Say the original capital amount is C then without the repayment break the original poster would be paying C off over 35 years but with the repayment break they would be paying €C + (€C x 3/12 x interest rate) over 34 years and 9 months. The two scenarios can be evaluated using the calculator linked above.

Similarly Apple* would be paying C + (C x 6/12 x interest rate) over a term 6 months shorter than the original term agreed instead of paying C off over the original term.

Taking a repayment break will cost you money!
 
I deferred the first 3 months of my mortgage with AIB

Thaught it was a great idea

Got a letter from AIB afterwards saying that my mortgage would end 3 months later than originally expected it to, However I would still be paying the same amount of interest

SO are you sure that its costing me extra Clubman
 
Almost certainly - yes. They almost certainly capitalised the 3 months of interest during the repayment break so you were actually paying C + (C x 3/12 x interest rate) over, say 30 years, even though the actual term of the mortgage was 30 years and 3 months (the latter constituting the repayment break period). How can C + (C x 3/12 x interest rate) cost the same as C over, say, 30 years?
 
The way I would look at this is that those 3 months go directly to the very end of your mortage. So you will pay interest on that €4500 for the next 35years. Using BofS (cheapest....so best case senario), you will pay €22.71 every month, which over 35 years will amount to €9538.20. May not be 100% accurate but in real terms the cost of dererring for 3 months will cost you €5038.

This is the arguement I use to make early lump sum payments....assume my lumpsum is from my last year so I can calculate what it will save me!
 
The simplest way to consider it is the way that it will usually actually happen - the interest on the full capital amount for the repayment break period is capitalised - i.e. added onto the capital amount which only then starts getting repaid once the repayment break is over.
 
rmelly said:
Can anyone tell me the cost of deferring mortgage payments for the first 3 months? Assuming repayment is net 1500 per month over 35 years, as far as I can see, it means effectively borrowing 4500 extra over the 35 years, adding approx 20 per month.

Is this correct? Good or bad idea?
Click to expand...

Assuming repayment is 1500. Lets also assume that the capital amount is your repayment is 300. So interest due on the 3 months is approx 3600 (1200*3). This amount is then added to the capital amount of your mortgage so you know owe the mortgage amount + 3600. This total amount is then repayable over 34 years and 8 months (your first repayment being due 4 months after you drawdown).

I took out this moratorium also and I'm pretty certain this is how it works. Probably not good value but was an invaluable tool at the time to get together some extra cash to spend on furniture etc.

My advice would be, use it if u need the extra money at this time. Then maybe in a year or two's time look to pay the 4500 off the outstanding capital due on the mortgage and you should be back with the same outstanding loan balance as you would have been if you hadn't taken out the moratorium. This will also minimise the extra interest that would be payable due to the moratorium. If you pay off after 2 years, the penalty on the moratorium should be about €200.
 
Just to clarify - I was not commenting on whether or not it was a good/bad idea (depends on circumstances) or good/bad value. I was simply pointing out that there is a premium to pay for taking a repayment break versus not doing so due to the capitalisation of interest that accrues and the lack of capital repayments during the break. This was on foot of the title of this thread "Cost of deferring repayments for 3 months?".
 
Thanks for the responses. My main reason for considering doing this is to retain a reasonable contingency/emergency fund (having committed most of my savings to the purchase) by adding to existing remaining savings. I plan to build this fund/savings up again with monthly savings, and am considering repaying the 4500 within the year by overpaying mortgage by 150 - 200 a month from day one, and probably an additional lump sum late in the year.

Any thoughts?
 
Why not forego the repayment break and save a bit while you make the normal repayments thereby boosting your remaining savings into a bigger contingency fund?
 
ClubMan said:
Almost certainly - yes. They almost certainly capitalised the 3 months of interest during the repayment break so you were actually paying C + (C x 3/12 x interest rate) over, say 30 years, even though the actual term of the mortgage was 30 years and 3 months (the latter constituting the repayment break period). How can C + (C x 3/12 x interest rate) cost the same as C over, say, 30 years?
Click to expand...

Sorry a bit confused even after reading through a few threads.

Have a mortgage statement

Before Moratorium: Capital Balance and a term left of 27yrs 4mths,

Statement today 3mths later: Increased Capital amount due (which I understand is the interest for the 3 months) but the Term remaining on the Mortgage is now 27yrs 1mth.

Does this mean that once the rest of my payment break is finished (6mths due to Health reasons) that the Capital will reflect original Mortgage plus 6 months Interest and term remaining of 26yrs 10mths? If so will my repayment increase after the 6 months?

My understanding of a Moratorium was that it frooze the loan at that particular date but that instead of a 27yrs 4mths mortgage I would have a 27yrs 10mth mortgage, or is this the same things, very very confused..
 
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