Sometimes events conspire against best-laid plans.
When we sign a mortgage, we hope and expect we’ll be able to make the required payments on time and, perhaps, even ahead of schedule. With an average length of 25 years, home mortgages in particular require long-term planning.
But whether it’s a once-in-a-century pandemic, temporary job loss, or other hardship, occasionally outside events prevent us from making our regular mortgage payments.
And although the government recently announced that it would extend a mortgage holiday by up to six months because of the COVID-19 pandemic, many homeowners remain in tight financial straits.
If you’re struggling to afford your mortgage, do your due diligence and explore the different options available to you. It can be an anxious time, but below are some answers to frequently asked questions (FAQs) that we hope can be helpful.
As with any personal finance decision, we urge you to seek independent advice that speaks to your particular situation. After all, the ability to keep a roof over your head gets at the centre of what it means to be safe and secure.
Don’t ignore your lender because a missed payment will damage your credit rating. In extreme cases, your lender could begin repossession proceedings.
If you miss a payment, your lender will report the ‘delinquency’ on your credit report, where it will remain for at least six. The longer it takes to bring your account current, the more adversely it will affect your credit score.
Contact your lender once you realise you can’t make your payment -- preferably before you miss an instalment.
Be proactive. If your lender thinks you’re operating in good faith, they’ll be more likely to help.
Common ways lenders may offer help include:
Forbearance: They may offer to defer your upcoming payment, particularly if your hardship is temporary. But the missed payments will add to your overall debt.
Refinancing your loan: This generally only happens if you have good credit. But it could mean refinancing at a lower interest rate, which could reduce your payments.
New repayment plan: They could work with you to extend the term of your mortgage to make each payment more manageable. This could include a switch to an interest-only payment plan or a repayment ‘holiday’, which gives you a break from paying regular instalments for a few months.
If your inability to pay your mortgage is likely to be long term, you may need to consider more drastic actions, such as selling or renting your house.
Your credit score will be adversely affected if you’re late on your installments. You may also incur penalty fees.
Contact your lender directly once you know you’re going to be late (or if you realise you accidentally missed a payment). You may still be charged a fee, but it’s best to be transparent.
Regardless, your lender will usually contact you within about two weeks if you’ve missed a regularly scheduled payment.
Be willing to seek outside guidance. Some useful debt-focused charities include:
They can offer advice on how to approach your lender about not being able to afford payments, as well as help you plan a budget so you can live within your means.
If you claim certain government benefits, you may qualify for a government loan known as Support for Mortgage Interest (SMI), which contributes towards the interest on a mortgage or home improvements.
You may be eligible for SMI if you receive any of the following benefits: Income Support, Pension Credit, Income-based Jobseeker’s Allowance, and Income-related Employment and Support Allowance.
Scotland also have the Home Owners' Support Fund (HOSF), to which you can apply for help if you’re having difficulty making your mortgage payments.
Although using your credit card to make your mortgage payment may seem like an immediate-term solution, it has serious medium- and long-term implications.
For starters, most mortgage providers won’t accept payments with a credit card, though you should check with your lender specifically to enquire about their policies.
Regardless, if you do try to use your credit card to pay your mortgage, your card provider may treat that as a cash advance. Cash advances typically require immediate interest payments. Even if it’s not considered a cash advance, it would merely shift your debt to your credit card, which you’d need to clear within a certain period -- usually less than two months -- to avoid interest.
Plus, if you do pay your mortgage with your credit card, you’ll potentially be stuck paying interest twice: once on your credit card debt and once on your mortgage. And credit card interest rates tend to be very high.
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Be proactive and contact your lender if you realise your mortgage payments have fallen into arrears.
Your options for paying back what you owe include but are not limited to:
Making extra payments in addition to your regular installments. This is only possible if you’ve got money to spare each month.
Adding what you owe to your capital. You may be able to keep your monthly payments down by adding your debt to your capital (the original amount you borrowed) and then repay it over the lifetime of the mortgage. Your lender may also allow you to extend your mortgage term to make your monthly instalments lower. But that means you’ll ultimately pay more money in total.
Borrowing money to raise extra cash. You could consider taking out a loan from a trusted source.
Cashing in a mortgage payment protection insurance policy (MPPI). If you have an MPPI policy, it may cover your mortgage payments if you’re out of work due to unemployment or illness.
Give up your endowment policy to raise extra cash. If you have a pension or an endowment policy, which is a type of life assurance, you might be able to use it to pay off your debt. But this is a major step, so consult an independent financial adviser before taking it.
Once you’ve decided on the best route to handle your mortgage debt, contact your mortgage lender to discuss how they’re willing to proceed.
If you’re unable to catch up on your payments, your lender could ask a court for a ‘possession order’, which allows them to sell your home and use the proceeds to recover the money you owe.
Before applying to a court for the order, however, your lender has to provide at least a two-week written notice.
While the stakes are high when it comes to mortgage debt, remember that there are resources out there for you.
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