Here's what a moratorium on your mortgage payments could end up costing you

With Covid-19 wreaking havoc with the economy and hundreds of thousands of workers in Ireland already losing their jobs, concerns over how homeowners would be able to continue to afford their mortgage repayments have been widespread. So understandably there was much relief when the five main banks here all got together in March and announced that they’d be offering mortgage customers a moratorium or break on repayments for up to three months. As the crisis lingers on this has now been extended to six months in most cases.

But what exactly does this mean and what could it end up costing you?

What are the banks offering?

Banks are offering customers affected financially by Covid-19 the option to stop their mortgage payments for three months, with the option of an extended break of six months now also available. The break in payments is also open to those who are in arrears and won’t affect your credit rating if you decide to apply for it. 

In some cases you may be able to negotiate a longer repayment break but it’ll be up to the individual bank's discretion.

During this time you’ll pay nothing to the bank - no interest and no capital payments - which should hopefully give you some financial breathing space until the crisis subsides.

Will I be charged for availing of the break?

In short, yes. This is why you should think carefully about whether you need to apply for the break.

Although you’ll pay nothing during the break period, interest will still be charged on your mortgage during this time meaning you’ll end up having to pay back even more to your bank over the remaining term of your mortgage.

In most cases the extra interest won't be paid back in one lump sum - it’ll be added on to your usual monthly mortgage repayments after the three or 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.

According to the BPFI the average mortgage for first-time buyers is around €225,000. Under normal circumstances this amount being borrowed over 30 years at a 3.20% interest rate would end up costing a mortgage holder over €125,000 in interest to the bank. Do you really want to pay even more?”

So what’ll it cost?

How much extra you’ll be charged in interest depends on the size of your remaining mortgage, the interest rate you’re currently paying, the number of years remaining on the loan, and the length of the payment break that you apply for. 

For example, in the table below, you can see that if you had €100,000 left on your mortgage with 10 years remaining you’d end up paying an extra €493 in interest to the bank over the remainder of your mortgage if you take up the offer of a three-month stay. However if you have €300,000 remaining over 30 years, you'll end up paying over €4,300 to your bank if you take up the offer of a six-month stay. 

Note that all figures below are based on someone paying an interest rate of 3.20% for the entire remainder of their term. 

What do you think?

Are you going to apply for a mortgage break? And what you you think about the banks' current offer of support? Does it go far enough or not far at all?

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