The frightening phrase on any mortgage document or advertising – you may lose your home if you fail to keep up payments… - is a reminder of how important this particular type of debt is.
At the moment, inflation remains relatively low, but it is rising and that could trigger a rise in interest rates, which for families on flexible deals could spell disaster.
It’s a reminder that if you can you should overpay and reduce your mortgage debt whenever you can and if you’re not struggling with other, higher-rate debts.
Don’t put your head in the sand
The worst thing you can do is ignore troubles with your mortgage. Even if you think you may have problems in the future, your best bet is to act quickly as soon as you have worries about meeting your mortgage repayments, because as we’re warned, your home could be at risk.
1 – Make the change
Changing to a better value mortgage can be quick and make a big difference to your payments. Shopping around takes time though.
The amount of equity you have in your home is crucial to this calculation. If you own more than 20% of your home then you’re likely to be able to access the best deals. Less, and you still may be able to improve your deal but it’s tougher.
Currently, if you are paying 4.5% or more you could save. Using an independent mortgage adviser might help you through this complex process.
2 – Forget the capital
Interest only mortgages are far cheaper than those which repay the capital too. If you’re really concerned that you won’t be able to meet your current repayments then it may be a good short term fix. However, remember that your debt will be untouched and you’re expected to make arrangements to repay the capital.
Some lenders are trying to stop borrowers from switching to interest only deals. If you have problems then it may be worth complaining to the Financial Ombudsman. There is no obligation on the lender to let you switch, but if the alternative is arrears and repossession the ombudsman will take a dim view.
3 – Give me more time
Adding a few years to the length of the loan will have a less dramatic effect on your monthly payments but that could be enough for you. Most mortgages are designed to be paid back in 25 years.
You will end up paying more over a longer period, but if repossession is looming it’s worth considering. So, think closely and then decide on what's best for you, your home and your family and it should be fine.
4 – Bite the bullet
If your debt is simply too much to manage you may need to sell up and move to a smaller property or even rent. Remember to factor in the cost of moving home and any penalties on early repayment into your calculations. Sell your home fast for the least amount of trouble.
5 – Insurance
You can insure against getting into problems with your mortgage, but it’s a controversial area. It’s expensive and claims can be hard to make. The best you’ll get is two years of payments on your mortgage. Think carefully before adding this premium to your mortgage bill as there are also certain limitations with the issue.
Mortgage arrears can be something that really ramp up the pressure on people and can cause all sorts of issues. However, dealing with the problem front face on will allow you a range of benefits and make the whole issue a lot easier to overcome. Our tips and tricks should help you through and ensure that you make the most of the problem at hand.