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Effectively Managing your Mortgage Arrears

By: Garry Crystal - Updated: 18 Jan 2013 | comments*Discuss
Effectively Managing Your Mortgage Arrears

If you are in arrears with your mortgage and having serious debt difficulties then you need to deal with the problem as soon as possible. Defaulting on mortgages could mean that the bank or lender will repossess your home. Managing your mortgage arrears should start with contacting your lender and explaining your financial situation at the earliest possible time.

Contacting your Lenders

If mortgage arrears letters have been coming through the letterbox then the most important thing is not to ignore them. Contact your mortgage lender as soon as possible and honestly explain your financial situation and the reason for the arrears. Reputable mortgage lenders will have procedures set in place to deal with situations such as arrears. They would much rather work out some form of repayment scheme than proceed with any repossession process.

Make some Form of Repayment

When you speak to your lender have some form of repayment plan in mind. Lenders will look favourably on your situation if you are taking the arrears seriously. There may be circumstances where, for a limited amount of time, you can pay only the interest on the mortgage. This effectively means you will not be paying anything towards your overall mortgage payment and you will need to make up the repayments at a later date. But it will give you some breathing space and repayments will be lower.

Making a Budget

Sitting down and making out a financial budget plan will help you see where your money is going. By doing this you can list all of your expenditure and income and then see where costs can be cut. If you can see some way to save money in the short term then you can use this plan when you speak to lenders.

Never Take out More Debt

Taking out more loans and credit is not the route to go when managing your mortgage arrears. It may seem like the ideal short term solution but it will only lead you into deeper debt. If you are struggling to pay important mortgage fees then there may already be some record of this on your credit file. Lenders will see that you are a bad credit risk and will either refuse credit or hike up the interest rates on credit they do offer.

By taking out more credit you may end up with another secured loan against any equity on your home. You will also find yourself with not only mortgage payments to make but also high interest loans or credit debts on top of this. Never juggle credit cards or loans; this is the best way to find yourself saddled with unmanageable debts.

Financial Assistance

There may be some instances where you can gain financial help in paying your mortgage. If your income has fallen through job loss, illness or redundancy, then check to see if you are covered by Payment Protection Insurance. If you are claiming job seeker’s allowance or income support then you may also receive help with mortgage payments. State benefits may at the least pay the interest on your mortgage payments.

Other Ways to Pay Arrears

There are other options open to you that may be considered by your lender in order to help with managing your mortgage arrears. Many of these options are dependant on the terms of your original agreement and the length of time you have been paying your mortgage, but they may include:

  • Taking an endowment payment holiday.
  • Cashing in or selling an endowment policy.
  • Extending your mortgage period.
  • Adding your arrears to your actual mortgage loan.
  • Making extra payments to future mortgage repayments.
  • Selling your house yourself.
  • Using a ‘rent back’ or ‘sell to rent’ scheme.

Giving up your Home

Giving up your home and handing the keys back to your lenders should be a last resort. The bank will sell you home as quickly as possible, which may mean selling for a lower price than its actual worth. If it sells for less, then your mortgage loan may not be fully repaid and you may still be made to pay the balance.

If your home is repossessed and you do not pay off the excess, lender’s can pursue you for up to six years after the sale. Your name will also be included in the repossession register and on your credit file and it may be hard for you to borrow in the future.

Managing your mortgage arrears does not have to be a stressful process, and there are many avenues you can take for information, help and advice. Make sure that you contact lenders at the first sign of rent arrears and fully explain your situation. In most cases, reputable lenders will be more helpful than you think.

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