You may see adverts for companies that will handle your debts for a fee. Be wary of claims that your debts will disappear – and remember that because you have to pay a fee, you are likely to end up paying off your debt for longer. Rather than paying a fee you could use one of the many organizations that will give free advice.
What can you do to pay off your mortgage arrears?
You could think about any of the following:
■ Start repaying arrears as soon as you can
It’s important to do this because arrears can often lead to extra charges that will increase the total amount you owe. Although paying off your arrears quickly could mean you have less spending money for a while, it is cheaper in the long run.
■ Make extra payments
You can arrange to pay your arrears by paying more each month than the standard monthly mortgage payment. But make sure you can realistically afford the extra. Even if your mortgage lender is unhappy with what you offer, pay the extra anyway. Explain why you can only afford this amount – there may be circumstances such as illness or a drop in income that your mortgage lender is not aware of.
■ Add the arrears to your mortgage
You could ask your mortgage lender to consider ‘capitalising’ your arrears. This means adding
them to your total mortgage balance, spreading the arrears over the remaining period of your mortgage.
Your monthly payment will then increase to take account of this. Your mortgage lender is unlikely to agree to this if you have previously failed to stick to revised repayment arrangements, or if your house is worth less than the balance of your mortgage including the arrears.
■ Extend your mortgage period
Most mortgages are normally repayable over 25 years. If you have a repayment mortgage and have been paying it for several years, you could ask your mortgage lender to extend the term back to 25 years again. This would reduce your monthly payments BUT you would be making them for longer – perhaps into your retirement.
This is more difficult to arrange with interest only mortgages that are connected to an endowment policy, PEP or ISA.
■ Ask to delay paying off your arrears
If you can now manage to meet your monthly payments, but can’t afford to pay anything towards the arrears, you could ask your mortgage lender not to demand payment towards your arrears for a period of time.
■ Changes you can consider if you have an interest-only mortgage
■ If you have an interest-only mortgage linked (for example) to an endowment policy and can’t afford both the mortgage and the endowment policy payments, you could ask the endowment company whether you can have a payment holiday. You will have to arrange with them how to make up the backlog of payments once you restart your policy.
■ If you have an endowment policy that has been running for several years, it may have built up a reasonable sum of money that you could use to pay off your arrears. This would mean cashing in the policy to take the money, or selling the policy. If you did this, then you would have to change to a repayment mortgage to make sure that the money you borrowed would be repaid. Before you do this, you will need to speak to both your mortgage lender and the endowment company. Cashing in an endowment policy early may result in the value of your policy being considerably reduced. You should think carefully before deciding to do this and askyour endowment provider for a cash-in value.
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