As the cost-of-living crisis continues to bite, household finances are being stretched with many struggling to meet the increased costs of essentials and having little or no savings to fall back on. This can lead to some families having problems making monthly mortgage repayments.
It is essential for households that find themselves in this situation to have access to the right advice and information. Rising interest rates are bringing mortgage worries to the fore for many homeowners, but the key thing to remember is you are not alone.
If you find yourself in this unfortunate position and can’t pay your mortgage, or think you might struggle to make your payments in the coming months, despite what some people believe, telling your lender you are having problems paying your mortgage does not mean they will start to repossess your home.
Lenders are very sensitive to the rising number of people facing a squeezed household budget, and if they know there is a problem they will do everything possible to help. The earlier your lender knows that you are facing financial difficulties, the greater the chance that you will be able to find a solution.
Options to help you through a difficult time
If you’re finding you can no longer afford your mortgage repayments, there are options that could help you through this difficult time. We’ve provided answers to some typical questions you may have.
Q: What should I do if I think I might miss a mortgage payment?
A: If you’re worried about missing a mortgage payment, the first thing you should do is contact your lender as soon as possible. They will try to work with you if you are experiencing financial difficulties and offer you help and support. Remember, you’re likely to have more options if you contact your lender before you’ve missed a payment.
Q: Will I lose my home?
A: Repossession is always a last resort. Your lender doesn’t want to evict you and will only take this step if there really is no other option – in fact, there are rules in place that mean lenders must attempt every other option available to them before they take legal action.
Instead, they will work with you to try to find a way to make your mortgage repayments affordable.
Q: What are my options if I can’t pay my mortgage?
1: Extend the length of your mortgage term
If you’re experiencing financial difficulties, you may be able to extend the length of your mortgage term. Doing so will lower your monthly payments and give you more time to repay your mortgage. You should speak to your lender about this option as soon as possible.
Extending your mortgage term will increase the total amount of interest you pay over the life of your loan, so you should only consider this option if you’re certain you can’t afford your current monthly payments.
2: Change to an interest-only mortgage
Changing to an interest-only mortgage can be another way to reduce your monthly payments and give you some breathing room financially. However, there are some things you should keep in mind if you’re considering this option.
While an interest-only mortgage will lower your monthly payments, it will also mean that you’ll owe more money when the loan term is up. You’ll need to have a plan in place for how you intend to pay off the remaining balance.
Switching to an interest-only mortgage may impact your ability to refinance or sell your home in the future. If interest rates rise or property values fall, you could end up owing more than your home is worth.
Before making the switch to an interest-only mortgage, bear in mind that this is a big decision that shouldn’t be taken lightly. But if you’re confident that it’s the right move for you, an interest-only mortgage may give you some much-needed financial relief in the short term.
3: Request a payment holiday
If you’re experiencing financial difficulty, lenders will look to see if they are able to offer you a pay-ment holiday, typically up to three months. This will hopefully give you some breathing space to get your finances back on track.
If you’re considering taking a mortgage payment holiday, speak to your lender first. They’ll be able to advise you on the best way to proceed, and will also be able to tell you if there are any fees or charges associated with taking a payment holiday.
It’s also worth bearing in mind that taking a mortgage payment holiday will extend the term of your mortgage, and so you’ll ultimately end up paying more interest over the life of the loan. However, if you’re in a difficult financial situation, a mortgage payment holiday may be the best option for you.
Q: Will it impact my credit score?
A: Taking out a mortgage payment holiday may impact your credit score. But it will depend on a number of factors, including the lender you are with and how they report missed payments to the credit agencies.
However, in general, taking a payment holiday is not likely to have a significant impact on your credit score as long as you make up the missed payments as soon as possible. If you do not make up the missed payments, or if you miss multiple payments, then your credit score could be negatively affected.
This may make it harder to borrow money over the short term. But there are steps you can take to improve your credit score once you get your finances back on track.
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