The Inside Edge
If you feel you are about to fall out of the black and into the red, read our guide on how to avoid mortgage arrears.
It can be quite tempting to ignore problems with finances and push them to the back of your mind, but this is the worst thing you can do. Long-term arrears can lead to the possession of your home and a huge black mark on your credit rating. You will find it very hard to get a mortgage in the future and this black mark will follow you around for at least 6 years.
The most important piece of advice we can give if you are falling into arrears is to ACT NOW. Acting quickly can help you to address the balance, stop the worry and get your finances back under control.
If you can, try to find a mortgage on a better rate. You can get lots of valuable advice by speaking to a mortgage advisor and they will be able to show you just how much you will save each month. Switching mortgages can be one of the most effective things you can do to save your home and your credit report.
Switch to Interest Only Payments
Switching from a repayment to an interest only can reduce your mortgage payments dramatically. However, this ploy should only be used as a short-term measure. Lenders can become difficult – they want their money paid after all and you won’t be making a dent in your overall debt so this should never be a long-term arrangement. Most lenders would rather you switch than fall into arrears so you should not find any problems in requesting this change.
Extend Your Mortgage Term
Adjusting your mortgage so that you are paying it over a longer period can help you to save every month. Of course, overall you will be paying back more money, but as your situation improves perhaps you can recoup the difference by making overpayments in the future. You can also choose to shorten the mortgage term once you get back on your feet.
Sell Your Home
Okay, this is the most drastic measure of all, but perhaps you cannot afford your home after all. Perhaps you overstretched yourself and it’s only just becoming apparent. Downsizing can therefore be a sensible option and give you a bit of breathing space. Moving to a financially manageable property will help you to get back to a better position and meet the payments on your mortgage. You will need to also factor in the cost of moving and any early repayment charges on your current mortgage. You might also want to consider renting for a while until the property market recovers and this can often be a more affordable option.
Payment Protection Insurance
And finally, many banks and building societies will offer you payment protection insurance if you are worried you might fall into arrears in the future. It’s always a good idea to read the small print before you sign any of these agreements as these policies are often expensive and are becoming harder to claim on as employment rates rise. Payments tend to be for a maximum of two years, though many policies stop paying after 12 months. Premiums also vary.