Mortgage arrears

Friday, November 9, 2007

If you have mortgage arrears on your current property you need to act quickly and address the situation.

Lenders should always encourage borrowers to contact them to discuss any difficulties with paying the mortgage, as early as possible.

Lenders are obliged to do all they can to help borrowers to try and bring their payments up to date. If it appears that the arrears situation is controllable and can be retrieved, then the lender has many options. The lender will also take into consideration the loan to value as this influences the lenders security. If the loan to value is low, there is less threat to the lenders security and therefore the options are likely to be wider.

The options a lender can look at are as follows:-

Payment of arrears over a specific period

This is where the borrower agrees to clear the arrears by paying more than the monthly instalment for an agreed period. Many lenders permit a maximum of a one year period for this to be done.

Full or partial suspension of monthly payments

This is sometimes offered where the mortgage is on a capital repayment basis, where there is already a reasonable amount of equity and therefore security in the property. This would only be allowed as a short term measure and is essentially a payment holiday. Arrears will build up over the 'holiday' period which will need to be settled within a set time at the end of the agreed period.

Accepting interest only payments

If the loan is on capital and interest repayment the lender may be willing to accept interest only repayments for a specific period. This will lower the monthly payments slightly but the lender would have to judge whether there is any real benefit to doing this.

Extending the term

The mortgage could be put back on track by extending the term of the mortgage. This could be on either a short term or long term basis. This option is used with great care with lenders as the borrower must be genuinely committed to keeping their account up to date. This cannot be carried out repeatedly.

Capitalising the arrears

The lender may agree to capitalise the arrears by adding the arrears into the loan so that the customer makes a slightly higher payment each month going forward. This will work where a customer has gone through a difficult period but is now able to manage their financial commitments.

Trading down

If the borrower has a mortgage that they can simply not sustain the best option would be to sell the property. A lender may suspend litigation proceedings if there is a genuine attempt to sell the property and downsize to a cheaper property.

The first thing to do if you fall into arrears with your mortgage is speak to your lender. If you do not and just ignore the situation it will be seen as irresponsible. The lender can only help you if they know the full circumstances. They are also more likely to help if you are open and honest. Arrears on a mortgage can happen to anyone, the difference is how you deal with it.

If you have approached your lender and they are unwilling to help you could get in touch with Solution Mortgages. We may be able to look at a remortgage for you where you can clear your arrears and start afresh with a new lender and maybe incorporate one of the latter mentioned scenarios. With a new remortgage you could increase your term or look to move onto interest only for a period to bring your payments down. If you have arrears on your mortgage there are options. Speak to Solution Mortgages on 0845 123 1260 or apply on-line at www.solution-mortgages.co.uk