Keeping Your Mortgage Payments Up to Date
With interest rates starting to rise, many homeowners have gotten used to low monthly payments on their mortgage.
Higher payments may cause some problems to their monthly budget as they try to accommodate the higher rate of interest reflected in the payments and as a result they may start to have problems making the payment, causing them to fall behind. Missing one or more payments puts the mortgage account into arrears, which can have serious consequences, such as repossession by the lender.
If you find it harder and harder to keep your mortgage payments current, there are a few things you can do to avoid going into mortgage arrears:
Switch mortgage lenders - Shop around among the many mortgage lenders to find the most competitive deal for your needs. Many lenders have low interest mortgage loans and easy repayment terms that may be better than your current loan. Once you find such a deal you do have to move quickly because many lenders have a set time period in which you can switch your mortgage.
A mortgage for £180,000 at the APR of 7.94% carries a monthly payment of £1394. However, if you switch to a lender offering a lower rate, such as 5.99%, you can shave about £226 off your payment each month. In order to take advantage of such a deal, you do need to have a perfect credit rating and missing even one payment in the past year would exclude you from such a deal.
According to Vivienne Starkley of Equal Partners in London, “If you are struggling with your finances you should always make your mortgage a priority and get on to a low rate fast. Getting a bad payment record limits your options.“
Switch to an interest only mortgage. Many lenders will permit you to switch your mortgage loan from one on which you make payments on the balance and the interest to one on which you pay only the interest that has accrued in the month on the outstanding balance.
By taking such a step, it will take a lot longer to repay your mortgage, but it will give your finances a bit of a reprieve when you need to have extra money. You can save hundreds of pounds each month that will enable you to keep your mortgage up to date and still have the option of paying more than the interest when you can afford it so that you do bring down the outstanding balance by a small amount.
One of the benefits of taking this step is that you do not have to switch lenders and there are no fees associated with the switch, which can take place in the middle of a term. However, you do have to realize that you can’t continue in this manner forever and that you will have to take steps to repay the outstanding balance after you have your finances straightened out.
Extension of the term. You can gain some financial relief by extending the term of your mortgage so that your loan is spread out over several more years. This will lower your monthly payment allowing you to avoid arrears on the mortgage. The average mortgage is set up so that it is repaid in full over the course of 25 years.
There are lenders who offer longer terms and by taking this step you can decreased your monthly payments and still pay an amount on the outstanding balance each month. Even extending the term by five years will save you about £85 per month.
There may be a nominal charge for making this change to your loan agreement, but you can make the change at any time. The disadvantage is that it will take you longer to become mortgage free.
Take a look at mortgage insurance. If you are worried that you may lose your job or become too ill to work, you can consider the possibility of taking out mortgage protection insurance. This insurance will make your monthly payments for you in the event that one of these things happen to you. However, there is a lot of controversy surrounding such insurance policies in that the premiums may be quite high and the payments on your mortgage are usually for a two-year period or less.
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