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Housing – Difficulties meeting Mortgage Payments - Institute of

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									                  Information Sheet - Institute of Welfare


Housing – Difficulties meeting Mortgage Payments
Keeping up with your mortgage payments should be your top financial priority.
If you are evicted because of payment problems (repossession), you could
become homeless. This doesn’t happen automatically, but the longer you
delay, the more difficult it will become to control your arrears and avoid long-
term debts. If you have already been threatened with repossession, get
advice immediately.
  •   Act Quickly
  •   Negotiate with your lender
  •   Get advice
  •   Pay as much as you can
  •   Check your mortgage payment protection insurance
  •   Be cautious
  •   Work out your options
  •   Stick to the agreement

Act quickly
If you fall behind on your mortgage payments, you need to take action straight
away. In some cases, the problem can be solved if you act quickly. Don’t wait
until the debt becomes unmanageable. Many lenders charge penalty fees if
you miss payments. The sooner you deal with the situation the more options
you have, and the less chance that you will lose your home.

Negotiate with your lender
If you have difficulty paying your mortgage (or think that you will have, for
example because you have lost your job) it’s important that to talk to your
lender as soon as possible. Don’t be put off because you think your situation
is hopeless. There is often a solution. If you haven’t yet decided what to do
about the problem, explain to your lender that you are going to get specialist
advice about your options.
Most lenders will expect you to come up with your own plans for paying off
your mortgage, rather than making suggestions as to what you should do.
You need to show that you will be able to pay off any arrears you have and
keep up with future payments until your mortgage is completely paid off. If you
haven’t worked out your options yet, it’s still important to speak to your lender
as soon as possible, to let them know that you are taking action to put things
right.
You can either write to your lender or make an appointment to discuss your
situation in person. You will need to:
  •   produce a detailed statement of your income, spending and debts
  •   explain any plans you have to increase your income or reduce your
      spending
  •   explain what changes you would like to make to the mortgage and how
      the new arrangements will affect the future payments


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Your lender will consider your proposal and decide whether to accept it. You
may have to negotiate further. If you switch to a different mortgage,
particularly if it is with a different lender, you may have to pay a redemption
penalty. It may be possible to add any fees or redemption penalties to your
mortgage and pay them off over the rest of your mortgage term.

Get advice
Negotiating with your lender can be complicated, especially if you are not sure
what options are available. There are a lot of options for lenders but they can
sometimes be reluctant to use them. You may want to get independent advice
before you decide what to do. A specialist adviser can help you to look at all
the options and put together a realistic and affordable proposal. Contact the
National Debtline or use the Advice Services Directory to find a free service in
your area.

Pay as much as you can
Paying your mortgage has to be your top priority, even if you are under
pressure to pay other debts as well. Losing your home through repossession
would only make your debt problems worse, so it’s essential to keep paying
as much as you can afford. This will help to stop your mortgage arrears from
rising too quickly. It will also show your lender that you are trying to tackle the
problem.

Mortgage payment protection insurance
Do you have insurance that would keep up your repayments for a time if you
are unable to work because of illness, accident or being made redundant?
Some people take this insurance out when they first take out their mortgage
and then forget that it exists, as it may be included in your monthly mortgage
payments.
If you have this type of insurance (which is different from a mortgage
indemnity guarantee or life insurance), check the policy carefully. Many
policies will not pay out until a few months after you are unable to work, and
then for no longer than a year or two. You may need to make other
arrangements to cover anything that is not covered by your insurance.

Be cautious
If you have lots of other debts as well as your mortgage, you may be tempted
to take on a larger mortgage with another lender. This may enable you to pay
off your debts, but it can also be risky. Even if the interest rate is lower, it may
be difficult to afford a bigger mortgage. You may also have to pay
arrangement fees. Get advice from an independent financial adviser or the
National Debtline before you decide.

Work out your options
The best way for you to sort out your payment problem will depend on your
individual circumstances. If you want to stay in your home, you will need to
find a way of stopping your arrears from rising while keeping up with your
future payments. You also need to pay off any arrears that have built up so
far. To do this, you need to consider:


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  •   cutting back on non-essential spending
  •   increasing your income (through wages, benefits or renting out a room)
  •   reducing your mortgage and/or insurance costs

If none of these options are possible, or you want to leave, you may decide to
sell your home voluntarily and move somewhere more affordable. You may
also be tempted to give your keys to your mortgage lender, but this will
probably increase your debts.

Reducing your mortgage payments
Although you will eventually have to pay back the whole of your mortgage,
there are several ways that it might be possible to change it to make your
monthly payments more affordable, including:
  •   taking a ‘payment holiday’
  •   switching to a different mortgage
  •   adding your arrears to your mortgage
  •   extending the number of years on your mortgage
  •   reducing or stopping your capital repayments temporarily
  •   reducing or stopping your endowment policy (or other investment)
      temporarily
  •   surrendering or selling your endowment policy or other investments

The best solution usually depends on the type of mortgage you have and your
age and personal circumstances, including how much you owe, how much
you can afford to pay each month and how many years are left on your
mortgage.

‘Flexible’ mortgages
Flexible mortgages give you more freedom to repay at the speed you choose.
If you have this type of mortgage, you may be able to decrease your monthly
or take a ‘payment holiday’ and pay nothing for a few months. Some lenders
will only allow you to do this if you have made extra payments beforehand, but
others may allow you to catch up on any missed payments later. If you need
to do this, you should talk to your lender as soon as possible.

Reducing your insurance costs
It may be possible to reduce your buildings insurance, contents insurance, life
insurance and/or payment protection insurance. You can’t stop your buildings
insurance policy altogether (it’s normally a condition of your mortgage) but
you may be able to find a cheaper policy. Contents insurance, life insurance
and mortgage protection insurance can sometimes be reduced. It’s also
possible to stop them, but this could be risky. If you do this, you need to
consider how you would pay off the rest of your mortgage or cover the cost of
replacing the contents of your home without them.

Stick to the agreement
It’s very important to stick to any agreement you make with your mortgage
lender. If you don’t it will probably be more difficult to negotiate with your
lender in future. If you have already negotiated an agreement, but are having


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problems sticking to it, get advice immediately. An adviser may be able to
help you to persuade your lender to change what was agreed.




Institute of Welfare, PO Box 5570, Stourbridge, DY8 9BA.
Tel: 0800 0 32 37 25
info@instituteofwelfare.co.uk
www.instituteofwelfare.co.uk
Company Limited by Guarantee No. 03924280
Registered Charity No. 1144623                                      August 2012




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