Finding the money for the mortgage payment should be every home owner’s first priority when it comes to dealing with monthly outgoings, as the home is far more than just the biggest asset. Once again many Brits are struggling with their mortgage payments and worry about becoming another repossession statistic. The worst thing anyone can do when finances are over extended is ignore the problem or try to keep the problem from their mortgage lenders attention.
If meeting the mortgage payment is a problem you should notify your lender at once, before the mortgage goes into arrears. Once this happens collection activity will begin, and ignoring letters and telephone calls will result in increased charges being added to the account. By addressing the issue head on you are more likely to receive options of help from the lender if you are candid about your financial situation.
It helps to assess why the mortgage payments have suddenly become a difficult expense to cope with. Beyond the obvious reasons such as unemployment or illness there may have been a change in the mortgage payments themselves to consider. It may be that you are on a variable rate mortgage and the interest rate has increased. Perhaps a fixed rate term has just finished and you have moved onto a higher variable rate. Maybe there are other debts which you are trying to meet at the expense of the mortgage. It is important to identify the cause to establish if it is a short term or ongoing problem.
Look at your overall financial picture and identify areas where you can reduce unnecessary spending, or come to a reduced payment arrangement with other creditors. Increasing income is the most obvious and viable solution. These things should be assessed before considering options which your mortgage lender may be amenable to.
If you have identified the problem as short term the best choice is to ask for a payment holiday for several months. You could also consider requesting reduced payments for a time. If however your assessment is that the financial difficulties may be more long term you should consider extending the term of your mortgage which will reduce the monthly repayments. The downside is you will pay the mortgage for additional years and it will cost more in overall interest payments, whereas the first two options won’t have as much long term impact.
You could ask the lender if they have another mortgage product you can switch to at a lower interest rate. If you are already struggling to meet mortgage payments it is unlikely you will have the funds available to consider remortgaging onto a lower fixed rate with another lender. If you do have the available funds in savings then use them to pay the mortgage.
If you have a capital repayment mortgage your lender may suggest switching to an interest only mortgage but this is not a good solution. It would result in your needing a suitable investment vehicle to run alongside the mortgage to pay it off at term, with no guarantee it would do so.
If you have equity in the home the most important thing is to avoid going into arrears and facing repossession. If your home is repossessed the lender will not sell it for the best market price thus you could well lose any equity build up. If you are genuinely struggling with too much house for your income a very viable option is selling to secure the equity, and renting. Naturally this is not an option for anyone dealing with negative equity, but in such cases if the home is repossessed the lender can pursue you for the shortfall which results from the sale for up to 12 years.
The key factors to bear in mind are prioritisng the mortage payment, reducing expenditure, increasing income, and approaching your mortgage lender early for a workable solution. The absolutely worst thing to do you are struggling to pay your mortgage is to ignore the problem until you are in arrears and already appear as a lost cause.