If you are struggling to pay your mortgage each month and you are worried that might you might start falling behind with your payments this is a very serious problem. If you allow your mortgage to get into arrears you could be putting your property at risk of repossession by your mortgage lender.
Fortunately there are a number of things you can do which will help you avoid getting into mortgage arrears. These include both working with your mortgage lender to see if your mortgage payments can be reduced and reviewing your monthly expenditure budget to see if you can make savings in any other areas.
Whether any of these options are suitable for you will depend on your specific financial situation. Very often you will need to combine them to avoid a serious mortgage arrears problem.
Agree a mortgage payment holiday
If you are suffering from temporary financial problems then it may be possible to agree a payment holiday with your mortgage lender. A payment holiday will mean that you can suspend your entire mortgage payments for 2-3 months to give your finances time to get back on track.
Normally the agreement you make with your mortgage lender will be that the payments you miss during your payment holiday will be added to the end of your mortgage. The missed payments should not result in an increase to the cost of your ongoing mortgage payments when you start paying them again.
Payment holidays are actually a very common tool which mortgage lenders use to help their clients get through a temporary financial problem. However you will need to be able to prove to your lender that you will be able to start making your payments again within a reasonable time.
Reasons for your lender to grant you a payment holiday will normally be a short term loss of earnings due to a period of illness or a one-off financial crisis that you have had to deal with such as a natural disaster like a flooded home.
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Agree to reduce the cost of your mortgage with your lender
If the reason why you are struggling to pay your mortgage is more long term then simply taking a payment holiday will not really help. Perhaps your income has permanently reduced due to a job change or the cost of your mortgage has recently increased because you have come off a fixed rate deal and you are now paying the bank’s SVR (Standard Variable Rate).
In these circumstances your mortgage lender has various tools available to them which can help reduce the ongoing cost of your mortgage. However whether they agree to use them or not will always depend on your financial circumstances and the type of mortgage you already have.
1. Change to an interest only mortgage
If you currently have a repayment mortgage your lender can allow you to change to an interest only product. This will have the effect of considerably reducing your monthly mortgage payments. However lenders are often reluctant to allow this option as it will mean that your mortgage is not being repaid each month. As such at the end of your mortgage term your principle mortgage debt will remain outstanding and you might have to sell your home to repay this.
2. Increase your mortgage repayment period
Depending on your age your mortgage lender has the option of extending the period over which your outstanding mortgage has to be paid. The result of this will be that your monthly mortgage payments will be reduced and so become more affordable. However you will end up paying more interest and therefore the amount you pay back to your mortgage company overall will be significantly increased over the long term.
3. Reduce your mortgage interest rate
Ultimately your mortgage lender has the option to reduce the rate of interest they charge you for your mortgage. This will reduce the cost of your monthly mortgage payments thus making them more affordable. Most mortgage lenders will be very reluctant to use this option. However if the alternative is that you get into uncontrollable arrears and the lender is faced with eventually having to repossess your property they may agree to this as a last resort.
Make other savings in your living expenditure budget
Before your mortgage lender offers you any help it is likely that they will want to see evidence that you are also doing your best to reduce your living expenditures in other areas to ensure you are making the maximum possible amount of cash available for your mortgage payments.
For this reason as well as speaking to your mortgage lender you also need to carry out a review of your monthly living expenditures and see where you can cut back. The way to do this is to complete a living expenses budget for yourself. Use our living expenses guide to help you if necessary.
Once you have completed your budget you may be able to identify areas of your monthly expenditure which are not essential and can be either reduced or stopped altogether. If you are able to reduce spending in some areas this will free up cash to ensure that you have enough to pay your mortgage payments and prevent the risk of getting into mortgage arrears.
Reduce your other debt repayments
If you have reviewed your living expenditure budget and there is simply no more you can do to reduce any of your monthly expenditures then another area you must then consider is the amount you are paying towards your other debts.
One of the main reasons for people to get behind with their mortgage payments is that they are prioritising payments to their unsecured debts such as credit card and personal loan repayments. However this is a mistake as maintaining these payments will not help save your property from repossession.
If you are making payments to other debts each month you may well be able to maintain your mortgage payments and protect your home by using a debt management solution to reduce your unsecured debt payments.
The most common debt management solution is a DMP (Debt Management Plan). This will allow you to reduce your monthly unsecured debt payments to an amount you can afford thus releasing cash for your mortgage payments. However as a home owner the downside of a DMP is that there is a risk that your creditors could take legal action against you and apply for a charging order against your property.
To ensure that your property is protected from creditor action you should consider an IVA (Individual Voluntary Arrangement). For more advice about these debt management options please speak to one of the BeatMyDebt.com experts.
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