Are you struggling with mortgage repayments?

It’s fair to say that we have all been struggling with the financial uncertainty surrounding Coronavirus over the last year. Some have not been able to work. Income has been reduced. Living costs have increased and monthly finances have gone array.

Whatever the reason for you struggling to keep on top of your mortgage payments, you may have started to build up a debt… and you won’t be alone.

You may have missed one or more monthly payments or paid less each month than agreed, but whatever the reason, it is always best to get in contact with your mortgage broker or loan provider as early as possible.

If you know there’s going to be shortfall in your finances for a period of time, your lender may just be able to help – a ‘payment deferral’ would allow you to pause your mortgage payments for three months.

Our advice? Find out what you owe in total – your debt is only likely to increase if you don’t and we are all aware when it comes to mortgage repayments, you could end up being taken to Court and your home being repossessed.

But there are options out there, so don’t give up and hope the problem goes away. It won’t.

Instead, take the time to carefully consider what you could do to get back on top of the debt – draw up a budget to show your monthly income and outgoings, look at ways to cut costs and come up with some ideas of how you may be able to repay what you owe.

Once you've worked out a way of dealing with your debt, you will need to come to an agreement with your mortgage lender.

If you don't have any options for paying off your debt or can't reach an agreement with your mortgage lender, you should get help from an experienced debt adviser straight away.

Further advice on how to repay your mortgage debt follows…

Making extra mortgage payments

If you’ve got some money to spare each month, you may be able to pay back what you owe by making extra payments on top of your usual monthly mortgage payments.

To work out if you've got extra money to spare and how much, you will need to work out how much money you’ve got coming into your household each month and how much you need to pay out on bills and other expenses. This is called working out a budget.

When you've worked out your household budget, including any extra income you can earn, you'll be able to see how much money you have left over to pay off your mortgage debt. You will need to write to your lender and explain what you’re proposing to do.

Looking at your budget

If you've fallen behind with your mortgage payments, you will need to take a good look at your household budget. This will tell you if you've got any money left over which you can use to pay off your debt.

You will need to make a list of all the money you’ve got coming in and all the money going out of your household. This should include any other debts you owe. Make sure that the amounts you put down are realistic.

Think seriously about whether it's possible to increase the money you've got coming in or make cutbacks on your spending.

For example, you may be able to:

• claim benefits or tax credits.
• work overtime or take a second job.
• take in a lodger or rent out a room in your home.
• reduce the cost of household bills like water, gas, electricity or insurance.

There are lots of different ways to boost your income and spend less on your outgoings.

An experienced debt adviser can help you work out how much money you’ve got to pay off a mortgage debt and any other debts you owe. They can also advise you about ways of increasing your income and spending less money.

Adding what you owe to your Capital

You might be able to clear your mortgage payments debt by adding the money you owe to your capital (the amount you borrowed) and paying it back over the remaining period of the mortgage. This is known as capitalising the arrears. You could also ask to extend the term of the mortgage in order to keep your monthly payments down, although you will end up paying a much larger amount in total.

Giving up your endowment policy

If you have an endowment mortgage, you could think about giving up your endowment policy or selling it off to an investor. This will provide you with a lump sum of money which you can use to help pay off the debt. However, you should think very carefully before doing this. You will need to find another way to pay off your mortgage loan and you will also need to find alternative life insurance cover. You will also need to find out whether there would be any penalties or other costs involved in bringing your endowment policy to an end.

Get independent advice first. You will need to write to your lender and explain how you're proposing to clear your debt.

Borrowing money

You could see if it’s possible to take out a loan, or borrow money from someone you know, to help you pay off the mortgage debt. Don’t borrow money from someone you know unless you know them well and can trust them. Be careful not to borrow from loan sharks.

You will need to write to your lender and explain how you're proposing to clear your debt.

If you take out a loan, check whether you can afford the repayments by working out your budget. It may also be a good idea to get advice from an expert debt adviser first.

Personal pensions for those over 55

You could take some of your pension money to help deal with your mortgage debt if you’re over 55 and have a defined contribution pension. ‘Defined contribution pensions’ are pension pots that are built up over time through regular payments.

You should consider the following before taking out some or all of your money:

• what costs you might have later in life, for example, care costs – you might need your pension money to cover these.
• how long you’re likely to live and whether you’ll need. your pension money later on.
• if you’ll have to pay tax on some of the money you take
• if you’re receiving benefits, they may be reduced or stopped if you take out some of your pension money.

You should speak to a financial adviser before taking money out of your pension pot to pay off mortgage debt.

Mortgage Payment Protection Insurance

If you’ve lost your job or had a temporary loss of income, check whether you have mortgage payment protection insurance (MPPI). You may have taken a policy out at the same time as you got your mortgage or afterwards. The MPPI policy may cover your mortgage payments if you can't work because of unemployment or sickness.

There are lots of circumstances in which, even if you have a payment protection policy, it won't pay out. You will need to check the terms and conditions of your policy carefully to see if you are covered. You may need to get advice about this.

You might also like to read our blog: What is Equity Release?

Source: Citizens Advice Bureau