A mortgage is almost always the payment you should prioritize above all other bills or outgoings such as credit cards or unsecured loans. Losing your home is a real possibility if you can’t keep up with your repayments so whatever you do, you should try and get the mortgage paid each month on time.
But what happens if you start to struggle with your repayments? What steps should you take and what should you do. In this article, we examine some of the best courses of action.
Speak to your lender
Hiding bills, statements and letters from your lender and pretending that they simply don’t exist is almost never going to help and can only hinder you. Instead, you should speak to your lender as soon as possible after you realise you may not be able to make your next repayment.
If you miss a repayment and haven’t told your lender that this is going to happen then it starts the clock ticking down towards repossession. Lenders will only repossess as a last resort and can’t repossess until you have accrued 3 months of arrears – but telling them in advance that this is going to help is only going to beneficial for you.
Once you have told your lender that you may be missing the repayment they may try and agree one of the following options with you to get you back on track and to fit your current circumstances.
Taking a payment holiday
Some lenders may consider providing you with a payment holiday – this is where you either are exempt from paying or are required to only pay a reduced payment, for a set period of time (usually up to a maximum of 6 months). This may have an impact on your credit score, but if you only need a couple of months to get your financial affairs back in order – it could be a lifesaver. Some lenders may consider providing you with a payment holiday – this is where you either are exempt from paying or are required to only pay a reduced payment, for a set period of time (usually up to a maximum of 6 months). This may have an impact on your credit score, but if you only need a couple of months to get your financial affairs back in order – it could be a lifesaver.
Extending the mortgage term
Lenders may agree to extend the term of your mortgage so that your monthly repayments can be reduced. For instance, increase the length of your mortgage from 20 years to 25 years. The downside of this, of course, is that you would end up paying more in interest over the lifetime of the mortgage, however perhaps this is a solution that would get you through the next few years at which point you could potentially renegotiate the term length back down (assuming the monthly repayments are now more affordable for you).
Change to an interest-only mortgage
If you need to more dramatically reduce the monthly payments, you could try and see if the lender will consider switching your mortgage to interest only. As the name suggests, this means that you are only paying the interest off each month and are never eating away at any of the capital. As a result, this is not a long-term solution – as you will never actually pay off your mortgage – but can get you through tough times if you find your income significantly reduced or other expenses skyrocket. You should try and switch back to a capital repayment mortgage as soon as you are able.
Taking pre-emptive action
If you are concerned that you may have trouble paying the mortgage bill in the future (for instance, you are concerned about your job security) then you may be able to take pre-emptive action by taking out an insurance policy to cover your mortgage repayments in the event that the worst does happen and you are made redundant.
This insurance is called MPPI – Mortgage Payment Protection Insurance and can cover your repayments should you have an accident, get sick or lose your job, and subsequently are unable to cover the mortgage payments.
It is important to note that not all MPPI policies are the same and some may not, for instance, cover you for redundancy. You are also not likely to be covered if your job is already under threat (i.e. you have been informed that redundancies are happening, and your role is at risk). So, it is important to fully understand the terms of the policy you are considering, the terms and conditions and what is/isn’t covered. Read more about MPPI here.
What if repossession is already underway?
If the worst has come to the worst and your home is being repossessed, then you should never try to fight the repossession by yourself. It requires legal expertise and lawyers who know what they are doing to argue your case on your behalf.
You can get access to something called Housing Possession Court Duty through your local council or the courts – this will provide you with representation in your case.
Also, always ensure to show up to the court hearing in person and on time. If you are physically there while your case is being heard the judge is more likely to allow you some extra time to get back on track if you demonstrate that you are serious and willing to attend court to plead your case.