Loan Interest Holiday Could Cause Worse Financial Problems
We reported yesterday on how the government has introduced a scheme, as part of its mortgage rescue package, whereby a borrower with a homeowner loan will be able to suspend the interest payments on their loan for a period of up to two years if they are facing repossession through losing their job.
On the face of it, this seems like a good idea which could save many people from losing their homes, but experts are now claiming that borrowers with homeowner loan arrears should be wary of the scheme, as it could end up costing them much more than the original amount over a longer term of years.
UK home owner loan companies have a legal right to pursue a borrower for arrears for a period of 12 years, although the Council of Mortgage Lenders (CML) has agreed to reduce this to six years and concerns have been raised that someone who opts for the loan interest deferral scheme could be chased by their lender for six years after the original problem started, causing additional stress for the borrower, not to mention the additional cost of the compound interest over the period.
Many experts believe that the UK is in for a long recession and if someone were to take a two year break from their home owner loan interest payments there is no guarantee that their personal financial situation will be any better in two years time, thereby leaving them with an even bigger problem of increased repayments and higher arrears than they were facing two years previously.
Some say that this scheme is doing nothing more than postponing the inevitable, but making the situation worse and borrowers should take it into their own hands to sort out some sort of suitable protection plan, such as payment protection insurance (PPI) for their home owner loan, to avoid the problem altogether.
