Mortgage debt: What you can do

Stressed man with bills

For most Brits, mortgage payments are one of the biggest monthly expenses, and with many struggling financially in recent years, it's all too easy to get behind with repayments. That puts your home at risk so it's important to deal with mortgage debt as soon as possible - here's how.

Call your lender
Whether you have underpaid for just one month, or are in arrears and getting threatening letters, it is essential to call and speak to your lender - do not ignore that scary correspondence. The truth is that mortgage lenders don't want to repossess your home unless absolutely necessary and will do their utmost to work out a suitable and affordable agreement that allows you to clear any arrears and keep your home. Before you call your lender, it's advisable to work out exactly what your incomings and outgoings are so take a close look at your debts and income and call prepared with what you spend where each month. The lender will then go through your budget with you to work out what options are available for clearing the debt and keeping up repayments - but do be honest about your situation, as stretching the truth could get you into more trouble.

Cut back or earn more
When you've established what your household budget is, try to see if you might be able to cut back somewhere, whether that be on utility bills, luxuries, travel expenses or even essentials such as food and clothing. The extra cash saved could be put towards an arrears repayment plan with your lender that will enable you to pay off what you owe. Alternatively, consider whether there might be a way to bring more money into the home, either by working overtime, taking a second job, or even renting out a room in your house. The Government's Rent a Room Scheme allows you to earn up to £4,250 tax free each year by letting out furnished accommodation in your home, and those regular payments from a lodger could make up the shortfall if you're struggling to make mortgage repayments or clear arrears.

Add to your capital
If you're struggling to find enough cash to pay arrears owed on your mortgage, ask your lender whether you can clear the debt by adding what you owe to the capital, i.e. the amount you borrowed initially. This way you will be able to gradually pay off the debt over the remaining period of the mortgage (known as capitalising the arrears), although it will add to the amount of interest you will pay over the term of the mortgage. Alternatively, you may be able to extend the term of your mortgage to reduce your monthly payments, giving you a bit of breathing space if you're struggling to keep up. Whether you can choose this option will depend on your age, as those getting close to retirement may not be allowed to extend the term, and once again, interest charges mean the total amount repaid will be considerably larger.

Cash in your endowment or pension
If you have an endowment mortgage, it may be possible to cash it in for a lump sum of money that could be used to pay off any arrears. This could mean that you need to find alternative ways of paying off your mortgage, however, and there may be costs involved, so it is wise to get independent financial advice before making the decision. The same goes for anyone considering using some of their pension pot to reduce or clear the debt. Those over 55 with a defined contribution pension may be able to use this method, but it could have serious implications later in life so do think carefully and seek advice before using pension money for your mortgage.

Are you protected?
Whether through illness or unemployment, some find that they are suddenly unable to make those sizeable mortgage payments. But if this is the case, it is worth checking your mortgage agreement to see if you have mortgage payment protection insurance (MPPI). You may well have taken out a policy at the time your mortgage was agreed, and it could give you some breathing space by covering your payments until you are able to get back to work. You will need to carefully read through those small print terms and conditions though, as there are often instances where the policy will not pay out.

Whatever your reason for having difficulty making repayments or getting into mortgage debt, the main thing is that you don't bury your head in the sand. Deal with the problem as soon as possible and speak to your lender. If you can find a way to clear the debt, make sure you advise your lender about how you plan to do this in writing to ensure that there are no misunderstandings further down the line. And if you are really struggling, it may well be worth speaking to your local Citizens Advice Bureau about how to deal with the debt.

Have you experienced the worry of getting into mortgage debt? What advice would you give to others in the same situation? Leave your comments below...
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