The recent jump in mortgage rates could mean a property price crash, as well as a sharp increase in the number of borrowers unable to make their mortgage payments.
If you’re not able to cover your monthly mortgage payment, it’s vital that you act as quickly as possible. Missing more than three payments in a row can be grounds for a lender to begin court action and ultimately repossess and resell the home.
It can also lead to more costs, like penalties, interest, and fees. Additionally, missed payments can have a negative effect on your credit file. Lenders can report the missed payment to credit bureaus like Equifax and Experian, and this can make it harder to get credit in the future.
Taking action quickly can minimize your fees and penalties and can also reduce damage to your credit file. It can also make it less likely you will lose your home.
If you’re facing financial difficulties, it’s important not to ignore the problem. Here are some steps you can take if you are struggling to pay your mortgage:
Check if you have insurance
If you’ve lost your job, become sick, or had an unexpected drop in income, the first thing to check is if you have insurance. Some mortgage lenders will offer a payment protection insurance policy when you take out a mortgage, so call the lender and check.
The insurance policy might not be with the lender and could have been taken out at another time, so it’s important to check your own records as well.
If you do have insurance, make sure you read the terms first. There are some circumstances where you won’t be covered, so read the policy carefully to see if you can get a payout.
Re-evaluate your budget
Improving your personal finances can have a significant impact on the affordability of your mortgage. Streamlining your outgoing and making a debt repayment plan can make it easier to meet essential commitments, like your mortgage and utility bills.
You can start cutting back on your spending by looking at your direct debits and other payments to see where you can make savings. First, cancel any memberships or subscriptions that aren’t essential, and check if you can get a better deal on the others.
For any other spending, like food, think about where you can make savings. For example, eating at home rather than getting take-out or going to restaurants can make a difference.
See if you can boost your income
As well as cutting back on spending, increasing your income can help to make your mortgage more affordable. Some of the ways you can generate extra income include getting a second job, freelancing, selling unwanted items online, transcribing, tutoring, or taking surveys.
Additionally, you should check if you’re entitled to any government support or benefits. These vary between countries and usually depend on your income, savings, and personal circumstances, but there are charities that can provide advice on this.
Negotiate with your lender
If you’re struggling to make payments or are already in arrears, you should contact your lender as soon as possible. Most lenders will consider requests to change the way you make payments, especially if it’s a short-term issue.
For financial hardship cases, you can ask your lender what the options are. These might include a payment holiday or making a repayment plan. You should consider how much you’re able to pay and when then discuss this with your mortgage provider.
Change your mortgage terms
Another option your lender may offer is to modify your mortgage to make your payments more affordable. This could mean switching to interest only or extending the loan’s term.
Extending your loan means paying more interest overall, but it reduces monthly payments. Switching to interest only means you won’t be paying off any capital, but it also means your monthly repayments will be lower.
Lenders are not obliged to modify mortgages, and many will refuse the application. However, some will make changes to customers with a good credit history and strong track record of keeping up with their payments.
Look for a better deal
If you have a good credit history, you can also consider taking out a new mortgage with a better rate, as this can give you a lower monthly payment that’s more affordable.
For this option to be feasible, it’s better to have more equity in the home, as this makes it easier to take out a new loan at a lower interest rate.
If there is a longer-term change in your financial situation, taking out a new mortgage can be a beneficial option – but it’s important to remember that the process can take a while and be costly, as you will have to pay fees on the new loan.
Rent out your home
Another option for those who can’t afford their mortgage in the longer term is to rent out the house and move in with friends or family. If the rent is another to cover the mortgage payments, this can be a good solution.
As a landlord, you will need to consider the other risks, though. For instance, if the tenants miss any payments or cause damage to the property, this can be very costly to you.
You also need to consider other things, like arranging a landlord’s insurance policy and carrying out the proper maintenance. The legal requirements for this vary between countries.
Consider selling your home
The final resort for most people would be to consider selling the home. This can make sense in some cases financially, especially if the home is worth a lot more than the mortgage amount.
One thing to keep in mind, however, is that any payments you miss during the sale process can have an effect on your credit. You are also liable for fees and interest during this time.
Another option is to discuss this with your lender, as they may be willing to settle the account more quickly using a short sale, which avoids a repossession taking place.
Seek financial advice
Lastly, as well as speaking to your lender, make sure you seek financial advice. If you can’t afford a financial advisor, there are charities and organizations that provide free or reduced-cost debt advice to those that are unable to pay the full cost.
Speaking to a trained advisor can help you figure out what your options are and decide on the best way to proceed.
Struggling to pay your mortgage is always unpleasant. But, no matter how dire your financial situation is, dealing with it as quickly as possible is always best.