Money Watch – Personal Finance Blog

It’s a sad fact that over 19,000 homes were repossessed in the first half of this year, and with the way things are going, that figure should be easily surpassed during this second half.

So if you’re struggling to pay your mortgage, what should you do? The Independent has put together 7 tips that will help you out, plus keep reading for a bonus tip:

1. Contact your lender – whilst you might be a little worried about telling your lender about your problems, there’s no point burying your head in the sand – it is the best place to start, as there may be something they can do to help you out. They might be able to give you a mortgage holiday or change your repayment mortgage into an interest-only mortgage (if you have a repayment mortgage in the first place. They could also increase the term of the mortgage to reduce the payments, again, you’d need to have a repayment mortgage in the first place for this to have any effect. You should definitely contact your lender BEFORE you miss a payment – once you’re in arrears you may find the options offered by a lender quite restricted. It’s worth remembering that for a lender, repossession isn’t a great option, especially with house prices falling – if they have to sell off the house, they’ll probably get back less than they paid for it, so they may well prefer to help you out rather than go down that route.
2. Continue to make payments – show the lender you’re serious about your mortgage by paying as much as you can off it if you can’t make the full payment. Of course, youshould speak to them first about doing this.
3. Get advice – there are a number of organisations who will be able to give you advice on paying your mortgage: Citizens Advice, the Consumer Credit Counselling Service and the National Debtline are 3.
4. Get Government help – find out if you qualify for Income Support for Mortgage Interest which will pay the interest on a mortgage up to £100,000 after 39 weeks. This will change from April to just 13 weeks and for mortgages of up to £175,000. It’s also worth finding out if you’re claiming all of the other benefits that you’re entitled to.
5. Check for any relevant insurance policies you may have – if you happen to have a mortgage payment protection policy lying around, now’s the time to get it working.
6. My house is worth less than the mortgage, and I can’t afford the repayments. Can I hand my keys back to the lender and walk away? In short, not a good idea. You’ll probably still owe the lender some money, and they’ll probably take you to court to get it back.
7. Should I use a sell and rent back scheme to stay in my house? – whilst there are some scrupulous sale and rent back companies around, this is an unregulated industry, so you should only consider this as a last resort.

Bonus tip

Here’s my bonus tip if you’re struggling to pay your mortgage.

Before you contact your lender (point 1 above), make a expenditure list, showing your income and outgoings. Then prioritise anything you’re paying for that you cannot do without (mortgage / council tax should probably be top of your list). Look towards the bottom of the list and think about what you can reduce or stop paying completely. Your mortgage (plus any other secured debts) should be paid before you pay any unsecured debts.

Once you’ve worked all of this out, speak to your lender – having this info to hand will show that you’re taking the problem seriously and you wan’t to do something about it. You may be surprised at how helpful they are. It’s certainly not something to be taken lightly, but your situation might not be as bad as you think.

photo credit: cseanburns