Mortgage Debt

Overview

For many getting a mortgage is an exciting prospect and a vital step to get on the property ladder.

A mortgage is the perfect example of how not all debt is bad.

However, falling into arrears can lead to serious repercussions so it’s important to stay on top of what you owe.

What is mortgage debt forgiveness and how does it work?

Mortgage debt forgiveness is when your mortgage lender forgives you for all or a portion of your mortgage debt if you meet certain criteria.

What is mortgage debt?

A mortgage is a secured loan that allows you to borrow money to buy a house or commercial property.

You will typically repay what you owe in monthly payments over a set period of time.

It’s important to stay on top of your monthly payments as falling behind on what you owe could have serious consequences.

As mentioned, a mortgage is a secured loan, that means that the money borrowed will be secured against your home or commercial property.

Failure to pay what you owe could result in your property being repossessed by the lender in a bid to recover any debts owed.

What are the different types of mortgage?

When looking for a mortgage it’s important to be aware of the different options available to you.

Variable rate mortgages

There are two types of variable rate mortgage. These are tracker mortgages and discount mortgages.

Tracker mortgage

With a tracker mortgage your interest rate ‘tacks’ the Bank of England Base rate. You’d typically only be advised to take this kind of mortgage with an introductory deal for a fixed period. After this you’ll move to your mortgage lender’s standard variable interest rate.

In a discount mortgage you pay the lender’s standard variable rate – a rate selected by the lender that doesn’t change often – with a fix amount discounted.

Discount mortgage

A discount mortgage can be ‘stepped’. That means you could take out a three year deal, for example, but pay one rate for six months and a higher interest rate for the remainder of the term.

Some variable rates have a rate that they can’t fall below, also known as a collar, or are capped at an amount they can’t go above. Be sure to look out for these when considering your mortgage lender.

Fixed rate mortgages

With a fixed rate mortgage you’ll pay a fixed interest rate for the entire term regardless of how interest rates change elsewhere.

You’ll typically find two or five year fixed rate mortgages. You’ll make a fixed monthly payment during this time and then will be moved to the lender’s standard variable rate.

Standard variable rate mortgages

Each mortgage lender has its own standard variable rate. This is set at the discretion of the lender and isn’t linked to the Bank of England base rate.

Lenders are entitled to change their standard variable rate at any time. That means you’re not entitled to a fixed interest rate and your mortgage provider could impose higher interest rates in the future.

What happens if I don’t pay my mortgage?

If you aren’t able to pay your mortgage payments and fall into arrears your lender will begin action to recover the debt owed.

This could result in your property being repossessed so it’s important to avoid this situation at all costs.

Repossession is often a last resort and the lender will be required to follow the correct procedures set by the Financial Conduct Authority (FCA). According the rules, they must:

  • treat you fairly
  • consider any payment arrangement you offer
  • consider any request to change the way you pay
  • only begin enforcement action if other efforts to recover the debt have failed

Mortgage lenders are also bound by ‘pre-action protocol’. This is a set of rules approved by the court that describe how they expect a lender to pursue legal action.

If at any point you feel these rules haven’t been adhered to, it may be possible to prevent repossession later down the line.

Interest only mortgage

With an interest only mortgage, your monthly mortgage payment will only pay the interest charges on the loan, not the total amount borrowed.

Your payments will be less than on a repayment mortgage but it’s important to remember that at the end of the mortgage term you’ll still owe the original amount borrowed.

If you aren’t able to pay your mortgage payments and fall into arrears your lender will begin action to recover the debt owed.

 

What should I do if I can't make my mortgage payments?

It’s important to act quickly if you find yourself unable to keep on top of your monthly mortgage payments.

You should speak with your mortgage provider as soon as you become concerned about making regular payments.

Your provider will usually write to you within 15 days of a missed payment but you should wait until then to speak with them.

Most lenders will put you in touch with specialist teams who can explain the options available to you if you income has dropped because of things such as redundancy, a death or illness or accident.

At this point your lender will likely offer you an alternative to making your full monthly payments to help you repay the mortgage arrears. This may include:

  • Arranging a payment break
  • Temporarily changing payment amount
  • Deferring payment (allowing you to pay later)
  • Temporarily paying just the interest rates
  • Extending the mortgage term

How we helped Paige

It was literally the best decision of my life, and it has actually changed my life, cheesy as that sounds, it has changed my life.

Paige , IVA Customer

Would a mortgage lender consider a payment break?

You may be entitled to a mortgage payment holiday if you meet strict criteria.

A mortgage holiday is an agreement between you and your lender that would allow you to temporarily stop or reduce monthly repayments.

Depending on your circumstances and other factors such as your payment history you might be able take a break of up to six months.

Not all mortgage lenders offer this – it depends on the product’s terms an conditions.

Can missing mortgage payments affect my credit file?

If you’ve missed a mortgage payment or even just paid later than you should have, your credit file will be affected.

Mortgage debt or very late payments will be record in your credit file along with information about how many months it took you to catch up with your payment arrangement.

These details will remain on your file for six years and can have an impact on your borrowing ability in the future.

The number of payments missed will also be taken into consideration by future lenders.

If you’re worried about falling into arrears you should speak with your lender as soon as possible.

Most lenders would rather come to agreement that’ll allow you to continue paying your mortgage even at a reduce rate.

If you’re not in arrears but are finding it hard to meet your repayments, it could be a good idea to shop around for a cheaper mortgage deal.

How many monthly mortgage payments can I miss before repossession?

If you have outstanding debt on your mortgage payments your lender will write to you within 15 days to inform you of the default.

Missing just one payment could lead to the lender applying for a repossession order so it’s important to avoid this at all costs. While it’s often a last resort for lenders it’s still important to act as soon as you know you could or have fallen behind on payments.

If you do fall behind on your payments, your provider must:

  • Let you know the total amount of your arrears
  • Detail the exact amount left to pay on your mortgage
  • Allow you enough time to make up the missed payments
  • Detail the specific payments you’ve missed
  • Explain any charges that have been incurred

What’s more, if the lender does intend to take repossession action they must give you reasonable notice in writing.

Missing just one payment could lead to the lender applying for a repossession order so it’s important to avoid this at all costs.

Can I sell my home with mortgage debt?

If you’re planning sell your property but are worried about mortgage debt, don’t panic you can still put your home on the market.

You may consider this option if your financial circumstances aren’t likely to improve in the near future and are planning to downsize to a more affordable property, rent or live with family.

How can I avoid mortgage debt?

There are simple steps you can take to avoid mortgage debt, including:

Making extra payments

If you’re in the fortunate position to have a little spare money left each month, you may be able to make extra mortgage payments. These are usually made on top of your typical monthly payment.

Before you commit to this it’s important to have a firm handle on your income and expenditure to make sure you’re able to afford this.

Review your budget

If you’ve fallen behind on your mortgage payments you will need to review your household budget.

This will let you know where you’re overspending and could save money. It might seem like a daunting task but all you need to do is list your income as well as all outgoings each month – starting with priority debts such as a mortgage and working your way down to non priority debts.

Give up your endowment policy

If you have an endowment mortgage you may consider giving up your endowment policy or selling it to an investor.

This will provide you a lump sum that can be used to help pay what you owe. This is a very serious decision and you should always seek independent financial advice before doing this.

Where can I find debt advice?

As mortgage debt is a secured debt it can’t be written off with a debt solution like unsecured loans such as credit cards or personal loans. However, if you’re struggling with mortgage debt the likelihood is you’re struggling with other debts too such as household bills.

Your Debt Expert can help you regain control of your finances generally and help avoid court action. Call 0800 082 8086 today to find out more.

 

Where can I get more advice on Mortgage Debt and other debt solutions?

To discuss your options and get the support you need to deal with your debt today, contact us now on 0800 082 8086 or click the button below to get started