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Break A Mortgage Calculator

Reviewed by Calculator Editorial Team

A break mortgage calculator helps you estimate the costs of breaking your mortgage early. This tool considers interest savings, early repayment charges, and other factors to help you make an informed decision about whether breaking your mortgage is financially beneficial.

What is a break mortgage?

A break mortgage, also known as a mortgage holiday or interest-only mortgage, allows you to temporarily stop making monthly mortgage payments while continuing to pay interest. This can provide financial relief during periods of hardship or financial difficulty.

Break mortgages are typically offered by lenders as a temporary solution to help borrowers manage their finances. However, they come with specific terms and conditions, including:

  • Maximum break period (usually 6-12 months)
  • Early repayment charges
  • Interest rate increases after the break period
  • Capital repayment requirements at the end of the break

How a break mortgage works

When you take out a break mortgage, your lender agrees to temporarily suspend your monthly mortgage payments. Instead, you'll pay only the interest on your outstanding mortgage balance.

The break period typically lasts between 6 and 12 months, after which you must either:

  1. Resume regular mortgage payments
  2. Repay the outstanding balance in full
  3. Switch to a different mortgage product

Important: Break mortgages often come with early repayment charges and higher interest rates after the break period. Always review the terms and conditions carefully before applying.

Formula used

The break mortgage calculator uses the following formulas to estimate your costs:

Interest Savings:

Interest Savings = (Original Monthly Payment - Interest-Only Payment) × Break Period

Total Cost:

Total Cost = (Interest-Only Payment × Break Period) + Early Repayment Charge

Where:

  • Original Monthly Payment = Your regular mortgage payment
  • Interest-Only Payment = Interest on your outstanding balance
  • Break Period = Length of the break in months
  • Early Repayment Charge = Fee charged by your lender for breaking the mortgage

Worked example

Let's look at an example to understand how the break mortgage calculator works.

Scenario Value
Outstanding Mortgage Balance $200,000
Current Interest Rate 4.5%
Original Monthly Payment $1,200
Break Period 6 months
Early Repayment Charge $2,000

Using the calculator:

  1. Calculate the interest-only payment: $200,000 × 4.5% × 6 months = $5,400
  2. Calculate the total interest paid during the break: $5,400
  3. Add the early repayment charge: $5,400 + $2,000 = $7,400
  4. Calculate the interest savings: ($1,200 - $300) × 6 = $5,160

In this example, taking a 6-month break would cost you $7,400 but save you $5,160 in interest payments, resulting in a net cost of $2,240.

FAQ

Can I take out a break mortgage at any time?
No, break mortgages are subject to lender approval and specific terms. You typically need to apply in advance and meet certain conditions.
What happens if I can't afford to repay the mortgage after the break?
If you can't repay the mortgage after the break, you may need to refinance or face financial consequences. Always ensure you can afford the repayments before taking a break.
Are there any tax implications for a break mortgage?
The tax implications depend on your country's tax laws. In the UK, for example, interest paid during a break may be tax-deductible. Always consult a tax advisor for personalized advice.