How To Avoid The Mortgage Struggle

04 Jan 2008

Millions of homeowners have been feeling the burn with rising interest rates and the overall cost of living. Repossession levels are creeping up as more and more people are struggling to make their mortgage payments. There are a lot of options available to anyone struggling with mortgage payments as shown in my previous article I Can’t Afford My Mortgage Payments, some options more drastic than others. However, there are options you can take from preventing yourself from getting tangled in the struggle, preventing the option of having to sell up and ship out.

Remortgage

If you’re coming to the end of a fixed term mortgage and don’t remortgage you will be put on the lender’s standard variable rate, which will be northwards of 7 per cent.

If you are one of the 1.4m homeowners coming to the end of a cheap fixed-rate deal, speak to a mortgage broker about finding the best deal.

Consider paying a higher arrangement fee to obtain the lowest discounted, variable and fixed rates, particularly if you are borrowing a large sum.

Switch to Interest-only

If you have a repayment mortgage the temptation is to switch to an interest-only mortgage, if only for a year or so, to get a breather from the high mortgage payments. Remember that switching to interest-only means you have to find some other way of paying this debt eventually, since you won’t be reducing the outstanding balance with paying the interest-only.

Extend length of mortgage

Lengthen the period of your mortgage. This will cost you, but it could be a temporary option. A £200,000 mortgage will be about £150 a month cheaper over 25 years than 20 years. Beware that increasing the length of the loan will mean you pay more interest over the whole period that the debt remains outstanding.

Release equity

If you have equity built up, you can release some to help pay your monthly mortgages until you get back on your feet. However, your monthly payments will increase with this option. If you get back on your feet before using the entire equity released, you can make overpayments to help reduce your payments again.

Spare Cash

Use any spare cash to reduce your mortgage balance and maximise the amount of equity in your property. Overpayments will reduce the amount of interest you pay and will shorten the period of your overall mortgage.

Talk to your lender

Do not just stop or miss payments, as you could lose your home. Talk to your lender about any difficulties as they are much less likely to take you to court if you are communicating. You could even come to a compromise with your lender to make life easier; ask your lender if you can reduce monthly payments or suspend them to get past temporary problems.

Be financially organised

Keep a money diary for a week, including all income and expenditure. Draw up a budget and work out ways to economise.

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