Mortgage arrears and debt

7 May2009

At the end of 2008, there were 219,100 mortgages in arrears of more than three months. So says the Council of Mortgage Lenders, whose members collectively undertake around 98% of all residential mortgage lending in the UK.

Why worry about mortgage arrears?

When money`s tight, it`s all too easy to fall behind on debt repayments and end up in arrears on some of your debts. It`s a bad idea with any debt (as it can damage your credit rating, incur fines and lead to legal problems) but some kinds of arrears, like mortgage arrears, are simply worse than others.

When you took out your mortgage, you agreed to repay in a certain way, and failing to do so would mean you`re breaching the terms of your contract. Mortgage arrears are particularly dangerous as breaching the terms of your mortgage contract can result in you losing your home. (It wouldn`t happen immediately, as repossession is lengthy process, but once you start missing mortgage payments, it is a very real danger.)

In other words, you need to put your mortgage debt first. If necessary, contact your other lenders (for credit cards, unsecured loans, overdrafts, etc.), and ask if they`d accept lower payments for a while, so you can make sure you don`t fall into mortgage arrears.

Mortgage arrears & other debts

If you can reduce the monthly cost of your other debts, you may be able to `free up` the money you need to make your mortgage payments (and to pay off any mortgage arrears you`ve already built up). Be aware that repaying your other debts more slowly can add to the total cost of those debts, as they`ll be picking up interest for longer.

Some people negotiate with their unsecured lenders themselves, while others ask a debt management organisation to do this on their behalf. And debt management isn`t the only form of debt help available. Depending on your financial situation, a debt consolidation loan or IVA (Individual Voluntary Arrangement) might be more appropriate.

Of course, tackling your unsecured debts isn`t always the answer - if, for example, you don`t have any unsecured debts!

Many people who find they`re in (or at risk of) mortgage arrears need to look at the mortgage itself. Your mortgage provider may allow you to pay just the interest on your mortgage debt - or even nothing at all - for a short period. If it looks like your money problems could be temporary, this could be all you need to regain control of your finances and pay off any mortgage arrears you`ve built up.

Mortgage arrears and remortgaging

If it looks like you`re facing longer-term financial problems, it still doesn`t mean you`ll definitely lose your home. You may be able to remortgage, spreading the cost of repaying your mortgage over a longer period. This isn`t necessarily ideal, as it means you`ll spend more on your mortgage in total (since it`ll be accruing interest for longer) and it also postpones the day you`ll pay off your mortgage altogether - the day when you`ll owe nothing on the property at all. However, if it`s the only realistic way of staying in your property, you might think that`s a price worth paying.

If you do remortgage, this could substantially reduce the amount you need to spend on your mortgage every month, reducing the risk of falling into mortgage arrears in the future - and hopefully helping you pay off any arrears you may have already built up.

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Tags: mortgage arrears, mortgage debt, debt, mortgage

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