How to avoid mortgage arrears

Many mortgage borrowers face the risk of going into arrears on their mortgage this year. The credit crunch with higher costs of borrowing and rising energy and fuel costs are starting to hurt homeowners.

Whatever you do, your mortgage needs to take preference but if you are struggling you should look at your current mortgage and address the situation.



With rates on unsecured loans and credit cards rising, the servicing of these debts is pushing many budgets to breaking point.

Repossessions are on the rise and this looks set to continue in 2008. They are at the highest number since 1999.

You need to act fast if you think that you are going to struggle to cope with these rising costs.

Many peoples low-rate fixes from 2002 and 2005 are due to expire soon and most will receive a payment shock due to the rise in interest rates and also the rate of their current lenders standard variable rate.

Here are some things you could consider to avoid those shocks and avoid incurring any arrears:-

LOOK FOR ANOTHER MORTGAGE DEAL

This is the simplest and the most effective way to reduce your outgoings. If you have bad credit you can speak to Solution Mortgages to look at what rates are available to you. You will have to move quickly to get the best deals as lenders are changing their criteria all the time in the wake of the credit crunch and although things may get better in time no one really knows.. If you delay as your existing deal reaches the end of its term, you risk being moved on to your lender's standard variable rate which will be extremely expensive. If you are struggling with your finances you should always make your mortgage a priority and get on to a low rate fast.



CONSIDER INTEREST-ONLY



Switching from a repayment to interest-only mortgage will bring the monthly mortgage bill down. Going interest-only should be considered as a short term option to lower your payments as you are not paying the capital of your mortgage, so will still owe the same amount as you originally borrowed.



Remember your outstanding debt will still have to be repaid at the end of the mortgage term, so you shouldn't get used to lower payments unless you are sure you can save enough to clear the debt or have a plan in place to repay the debt such as selling the property or an endowment etc

THINK ABOUT EXTENDING YOUR TERM



This can give modest relief on monthly bills while retaining the security of a traditional capital repayment mortgage. Most repayment mortgages are structured on a 25-year term. A little capital is repaid alongside the interest each month which reduces the debt.



By extending the term you reduce the amount of capital you pay each month and therefore make the rise in interest rates more manageable.

Most lenders are now flexible and will let loans last up to and even beyond the standard retirement age. However if you are extending your mortgage into retirement you must be aware that it is still your responsibility to pay your mortgage even if your income has been reduced.

If you wish to discuss any of the above options, please feel free to contact Solution Mortgages on 0845 123 1260 or visit us online at http://www.solution-mortgages.co.uk/