There can be situations uncalled where you face difficulty in keeping up with your mortgage payments. This has appeared as a common problem during the coronavirus pandemic and is a common question to us. This can be resolved either with the help of your lender or by government policies. In this article, we will try to jot down some of the common ways to sort this out. But it is always advisable to talk to an expert and explain the situation to him. The options available to you can be one of the below:
Deferring a payment
These are the payments that are postponed partially or completely for financial reasons. It is of various forms like deferring the agriculture tax, deferring for continuing study, etc. It is an opportunity for the people who are unable to pay the mortgage. The first thing to check with the lender for mortgage payment deferral also known as Payment holiday. The longer the payments are deferred, the higher the interest gets accrue, so it will ultimately cost more in the longer run. Please check your eligibility with the lender. The government has extended the payment holiday due to the current pandemic situation. Please refer to FCA guidance to understand where you stand on the list of rules. Payment holiday can be a good option when you are hopeful that you will be able to resume your mortgage payment in coming day
Extending your mortgage
This can be a good option when you are still able to pay your mortgage but there is a drop in your income. You can ask the lender to increase your mortgage term which will result in less monthly payment. You will also be able to pay the previous arrears in that case. But there is a disadvantage here. By doing this, you will be increasing the interest amount you are going to pay in total. So you need to think ahead and plan like that.
Switching to Interest only
Switching to repay interest only is another option when there is a drop in your income. This will help you in reducing the monthly payment. It is a good short-term solution but to finish your mortgage early it is always advisable to get it deducted from the principal. You need to talk to your lender to make the changes when switching to interest-only repayment
Arrears are those payments which you have not paid on scheduled time. Missing on scheduled mortgage payments does not mean you have to lose the house. Your lender, by law, has to support you and inform you of the arrears. There is a charge on the arrears which will be part of the repayment. Talk to your lender on this and figure out what will be your monthly payment including arrears to plan your budget.
Plan a budget
Planning a budget is the first point of the plan in such a situation. This should include all your income sources and their frequency. Similarly, list all your expenses and identify the unnecessary ones. Identify the loan which is of higher interest and make a plan around it. A famous equation you will found in many saving tips blogs:
“Earning – Savings = Expenses” and not the other way round “Earnings- Expenses = Savings”
Mortgage Support Scheme
The scheme helps the households experiencing zero or low income to defer the principal repayments and up to 70% of interest payments on their mortgage for up to 2 years. This of course will help in reducing the monthly payments. Here the borrower has to switch to interest-only payments and still have to pay at least 30% of the interest. There are certain points that make the borrower eligible for the schemes which you need to check with the lender or from an expert. This is help from the government for 2 years max so that the situation gets manageable in such households. Also known as Support for Mortgage Interest (SMI) give the below state benefits. To know more click the link
- Income Support
- Pension Credit
- Income-based Jobseeker’s Allowance
- Income-related Employment and Support Allowance
Refinancing your loan
If you are able to maintain a good credit rating, then you can finance your current mortgage with the loan having lower interest rates. You will be needing an expert to suggest when and how to plan this. The expert will be able to advise the best loans available and your eligibility on that.
This will be the last option if things are getting beyond control. When the homeowners find it difficult to pay back they can start the process of selling the house and let the lender handle your proceedings. In return, the lender accepts the sale as payment and releases the seller from the debt. This results in short of the amount from the sale not matching what is owed. Hence the name short selling. This will have less impact on your credit rating and you will be free of delayed repayments.
Many people are not aware of the free services like those mentioned below to get free advice on debt. These debt charities won’t promote anything and will offer you unbiased advice. They can help you in starting a budget plan and how to talk to your lender about repayments. They offer ways to work so that you and the lenders come to an agreement