What happens if I can’t pay my mortgage?

May 27, 2021
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Mortgage Arrears and can’t pay my mortgage?

Circumstances can change without warning, leaving you unable to pay your mortgage on time, or at all. These situations are often out of our control, and not something you would ever plan for when you first take out a mortgage. If you find yourself in a situation where you are unable to pay your mortgage, there are steps you can take to help limit the damage. Ignoring the problem or avoiding dealing with it will only make the issue worse. Read on to learn what happens if you can't pay your mortgage.

First things first, speak to your lender

If you are worried you aren’t going to be able to make your mortgage payments for any reason, the first step is to speak to your lender. They have teams and procedures in place to help their borrowers when they are struggling financially. They may be able to come up with a payment plan to help you get back on track, or look at extending the term so you can lower your monthly payments.

Remember that the lender is on your side, and asking for help before things become more difficult is better than delaying this difficult conversation. Lenders don’t want to repossess homes, as it means they will have to sell them and could lose out on their investment. They want you to keep a roof over your head, so don’t be afraid to ask for help when you need it.

What if you have missed a payment?

When you miss a payment on your mortgage, this is reported as a late payment and marked on your credit report. You will now be categorised as “in mortgage arrears” by your lender. Late payments should be avoided at all costs, as these will stay on your credit score for around 5 years and can affect your ability to remortgage or secure further credit, even once your financial position is more secure.

Check if you have insurance

You may have taken out Mortgage Protection Payment Insurance to protect you in the event you are unable to work due to injury or redundancy. Now is the time to check if you have MPPI and to take advantage of it if you do.

MPPI will pay off your remaining repayments if you are made redundant or unable to work after an injury. However, this type of protection is not standard, and you may have other options such as a redundancy package or generous sick pay.

There are other types of insurance that may cover you in the event you are unable to make your mortgage repayments. Check with your lender to find out if you have any coverage that could help.

Check if the Government can help

It might not be the most obvious route, but there are schemes available to help some people manage their mortgage payments if they hit a rough patch. The Government offers a benefit called Support for Mortgage Interest, which will help with a portion of the payment. This can help to lessen the financial strain and allow you to get back on your feet faster. It’s worth checking if you are eligible for any other benefits, as this will all help to ensure you don’t fall behind with your mortgage.

Could you remortgage your home?

If you’re in a tight spot, remortgaging your home would allow you to restructure your payments and could even release some equity. Any time you make changes to your mortgage and release equity, this will lengthen the term of your mortgage and it will take longer and cost more to pay it off. But if this is the only option available to you, it could be preferable to losing your home.

If you are unable to remortgage your home due to your financial situation, you could sell your home (even with mortgage arrears) and downsize. You could also move into rented accommodation temporarily until your situation improves. If you are unable to remortgage, it may be difficult to secure a mortgage on a smaller property, even with a large deposit from the sale of your home.

What happens if my home is repossessed?

If you continue to miss mortgage payments, your lender will eventually take action. This is the last resort and the worst-case scenario for everyone involved, so lenders will always try to work with you to avoid this outcome.

Your home will be put up for auction to help secure a fast sale and this could mean that it sells below market value. The lender will use the proceeds of the sale to pay off the remainder of the mortgage, including any mortgage arrears. If your home doesn’t make enough to pay off the remainder of the mortgage, then you will still be liable for the rest of the balance.

Once your home is repossessed, your name will be added to a register permanently. This can make it more difficult to get a mortgage again. If you fear that your home may be repossessed, it can often be better to sell it yourself, as you are more likely to get a fair market price. This could leave you with some money left over to put towards a smaller property or getting back on your feet.

Tips to avoid mortgage arrears

  1. You are likely to be familiar with budgeting tools if you saved your own mortgage deposit. If you are running into financial trouble every month, it might be time to tighten your belt. Look for ways to reduce your monthly expenses and start to build an emergency savings fund.
  2. In an ideal world, you should try to save 6 months of expenses to help protect yourself in the event your financial situation changes. This will give you some breathing room to help get your finances back on track.
  3. Avoid using credit to pay your mortgage. Getting into debt to pay off debt is never a good idea. This can quickly spiral out of control, so never use a credit card or take on additional loans to pay your mortgage.
  4. Never sell your home without a backup plan. Try to line up somewhere to live before you sell your home. If you sell your property at a lower price to secure a quick sale, you could soon find yourself homeless.
  5. Don’t walk away from the property. Returning the keys won’t make your problems go away, and it could leave you with even more debt. You’ll still be responsible for payments right up to the day it sells, so you won’t solve anything by walking away.

If you are worried about missing mortgage payments, always speak to your lender first. They have systems in place to help their customers through temporary rough patches and will be able to help you choose the best route forward.

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