If you’re having trouble making your mortgage payments it can be stressful, especially as arrears can potentially lead to repossession. We have a number of borrowers contact us because they’ve fallen into arrears and don’t know where to turn and what – if any – options are available to them.
To clarify, being in arrears means you have missed your mortgage payments and have payments overdue.
This usually happens because you can no longer afford your payments, possibly due to a change in circumstances. Life is unpredictable and can throw obstacles that can change our financial situations either in the short term or long term.
This article offers information on options that may be open to you should you have a change in circumstances and can’t afford to pay your mortgage.
What do I do if I can’t afford my mortgage and face arrears?
There are many circumstances that will push a borrower into financial difficulties. Whether you’ve lost your job, are getting divorced, your partner has died or you are on maternity leave there are options available.
However, if your circumstances change and you can’t afford to pay your mortgage you should always talk to your lender first.
If this is only a short-term issue your lender might have options such as:
- Granting a payment holiday might give you time to get back on your feet financially but can have an impact on your credit rating.
- Offering to defer the payment for a set period and make up the difference on a pre-agreed date.
- Extending the mortgage term without re-mortgaging thereby reducing your monthly mortgage payments, spreading the cost over a longer period.
What if my circumstances will be long term?
Some circumstances have a lasting effect on your financial situation and may need options that will cater for this.
If you think your financial issues will be long term there are options to help with your mortgage payments before you fall into arrears, such as:
- Re-mortgaging – There are lots of options around re-mortgaging. By doing so you could be offered better rates and terms (especially if you are currently on a variable rate mortgage). You could also change the term length of the mortgage, which in turn will lower payments as the cost will be spread over a longer period (however this will be dependent on age and credit rating).
As financial strain doesn’t always come from having a mortgage, it may be that other debts are causing the issue. Re-mortgaging can be used as a tool to consolidate debt. If you look at re-mortgaging, you could look at adding these debts to lower monthly outgoings.
- Interest only mortgage – If you are on a capital repayment mortgage you could potentially switch to interest only. You would only pay the interest on the loan each month making the payments lower. However, at the end of the mortgage term the amount you borrowed would be paid in full.
- Product transfers – An alternative to re-mortgaging. It involves switching your current mortgage deal to another with your existing lender. The procedure is usually straightforward as there doesn’t tend to be any complicated legal processes and you’re unlikely to need a full valuation on the property. However, rates may be higher than if you were a new customer.
- Equity release – Generally only available to those over 55, but a means for you to release capital from the property without having to move. There are no monthly repayments but the outstanding balance is payable upon sale of the property, when you go into care or pass away.
- Government schemes – Known as Support for Mortgage Interest (SMI) in England, it is a repayable loan. The scheme will only help with the interest on your repayments not the repayments themselves. As it is a loan it is repayable upon the sale or transfer of the property. You do also need to be in receipt of benefits to qualify for the loan.
What if I can’t afford to pay my mortgage because I am getting divorced?
It can be a trying time when you are in the process of divorce or separation. However, if you own a property and your name is on the mortgage you are still expected to keep up with the payments whether you are living there or not. Should repayments be stopped by you or both parties (if it’s a joint mortgage) mortgage arrears can damage your credit.
If you can’t afford to make payments on the mortgage there are options open to you such as the above, or you could look to transfer the mortgage to your partners name.
What if I can’t afford to pay my mortgage because I am on maternity leave?
We understand that when you’re on maternity leave your regular monthly income can change. Many of the above options are available to you as with anyone else. However, if you contact your lender first, they may consider you for a payment holiday or adjust the term length under circumstances.
What happens if I can’t afford my mortgage because my partner has passed away?
Whilst savings or life insurance policies can help in this situation, many of same options above are available to you as well. It’s also worth noting that a joint mortgage won’t automatically be transferred into your name (regardless of a will), you would therefore need to apply for the transfer with your lender who will carry out affordability checks.
Speaking to your mortgage lender when your circumstances change is paramount.
However, if you’re not sure what options may be available to you or you have any queries around the above options speak to a specialist mortgage broker. They will be able to help you with understanding what your options may be if you’re facing mortgage arrears.
Contact us at Online Mortgage Guru on 0345 3669799 or email us via firstname.lastname@example.org and we will put you in touch with a suitable specialist to handle your enquiry who has experience handling cases such as yours.