If you’ve been struggling to keep up your mortgage payments, you may have started to build up a debt. This is often called mortgage arrears.
You might be in debt because you missed one or more monthly payments or you’re paying less money each month than your monthly payment.
You’ll need to work out a way to pay back what you owe. If the debt continues to build up, your lender will take you to court and you might end up losing your home.
Your mortgage lender will contact you if you owe them money – make sure you don’t ignore them. Explain your situation and tell them you’re trying to work out how to pay back the money you owe. They might give you more time to pay off the debt.
If you decide to change your mortgage to pay off your debt, you should make sure you understand how any change in your mortgage could affect you.
don’t have any options for paying off your debt
can’t reach an agreement with your mortgage lender
have had a letter from your mortgage lender threatening court action
There are things you might be able to do to help to pay off some or all of your debt.
If you’ve fallen behind with your mortgage payments, you’ll need to take a good look at your household budget.
You’ll need to make a list of all the money you’ve got coming in and going out of your household. This should include any other debts you owe. Make sure that the amounts you put down are realistic.
You might be able to clear or reduce your mortgage debt by changing your mortgage arrangement. Any changes need to be agreed by your mortgage lender.
You might be able to:
add the debt to your mortgage
extend the time left on your mortgage
change to an interest-only mortgage
agree a payment break
make extra mortgage payments
Only some of these options might be open to you, it depends on your circumstances.
Before you agree to make any changes to your mortgage, ask your lender if there will be a charge for this, and how much it will be. For example, your lender could charge a fee for:
ending your fixed term mortgage before the agreed date – this is known as a ‘redemption fee’
changing the terms of your mortgage – this is known as an ‘administration charge’
You can add the money you owe to the amount you originally borrowed – you’ll pay it back over the remaining period of the mortgage. This is called capitalising the arrears.
Your monthly repayment will be higher because you’ll have more money to pay back in the same amount of time.
Your mortgage lender will check to make sure you can afford a higher monthly payment.
If your lender agrees to add the debt to your mortgage, you’ll no longer be in mortgage arrears.
You can lower your monthly payments by spreading your payments out for longer.
You can use the money you save from the lower monthly repayments to pay off your debt.
You’ll have to pay added interest so you’ll pay back more over a longer period.
Your lender can agree to let you only pay the interest on the amount you owe for a short amount of time. This will make your monthly repayments much lower so you can use the money you save to pay off the debt.
When you’re only paying off the interest you won’t be making any payments to the total amount you owe.
When the interest-only period ends you’ll need to pay the full monthly mortgage repayments. If you can’t, your lender might start the process of repossessing your home.
Your lender can agree to stop or reduce your monthly payments for a short amount of time.
When the payment break ends you need to pay the full monthly mortgage repayments. Your repayment amount might be higher as any interest and missed payments from the break will be added to the total amount you owe.
If you’ve got some money to spare each month, you might be able to pay back what you owe by making extra mortgage payments.
Work out your budget to find out if you have any spare money. If you do, make sure you can afford the extra amount.
A lender is unlikely to agree to a repayment plan that takes longer than the time left on the mortgage.
There are two main types of loans you can take out against the value of your home. How much you can get will depend on the amount of equity you have in your home.
Equity is the value of your home minus the amount you owe, it’s usually talked about as a percentage.
Before you take out a loan you should get financial advice from a specialist mortgage adviser, check how to find independent financial advice.
You can get a secured loan or ‘second mortgage’ on your home which you’ll pay back by monthly repayments. These are on top of your existing mortgage repayments.
Your lender will check to make sure you can afford the repayments before accepting the second mortgage. If you miss payments and fall into arrears, your home could be repossessed.
You can take out some of the money in your home as a loan, this is known as equity release. You should check the terms and conditions, for example some schemes have a minimum age of 55.
The loan will be repaid by the sale of your home when you move into long-term care or die.
You need to pay the interest on the amount you take out. Depending on your contract you might be able to either:
pay the interest in monthly payments
repay it all at the same time as the loan, with the sale of the house
If you have an endowment mortgage, you can cash in all or part of your policy or sell it off to an investor. This will provide you with a lump sum of money which you can use to pay off your debt.
If you give up your endowment policy, you’ll need to find another way to pay off your mortgage loan and find alternative life insurance cover.
If you have a defined contribution pension, you can take out some money to help pay off your mortgage debts. Defined contribution pensions are pension pots which that are built up over time through regular payments.
Before taking out some or all of your money you should think about:
any costs you might have later in life, for example care costs
if you’ll have to pay tax on some of the money
the impact of any benefits you’re receiving
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City of Westminster,
London,
NW8 8FT
United Kingdom
+44 20 53687183
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