Homeloan headache
Talk to your lender if you cannot meet repayments, writes Charlie Weston
Homeloan problems: More and more people are struggling to meet their mortgage repayments
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Tuesday February 03 2009
MORE and more people are struggling to meet their mortgage repayments.
The response of some people is to burn the letters from the bank and run to the garden when the lender sends someone around to your door.
But people resorting to this type of self-denial might be better off realising that that they are not alone: the recession means lots of us are missing mortgage payments.
There are no up-to-date figures on the numbers who are unable to pay their mortgages. The most recent figures, compiled by the Financial Regulator, were for June last year.
These figures show that 14,000 people had fallen into arrears on their mortgages. A mortgage arrear is defined as failing to make a repayment for three months.
However, the surge in job losses since is certain to have pushed this figure up.
The key thing to remember is that banks and building societies do not want to repossess your home, even if the threatening letters they send people in arrears give the opposite impression. Nor do the banks want to issue legal proceedings.
So banks will be very pleased to hear from a borrower who is in arrears, who recognises the problem and is attempting to resolve it, according to founder of www.askaboutmoney.com Brendan Burgess.
"Believe it or not, the banks understand that people lose their jobs, that marriages break up, that people get sick and that businesses suffer," he says.
Your lender will want the homeloan repaid, but they will work with you to help you solve what is a problem for both of you.
So that means that the smartest course of action is to contact your lender immediately you have a problem meeting your repayments.
The problem with arrears is that people in this situation often stick their heads in the sand.
This leads the bank to roll more interest (and possibly penalties) on to the mortgage account. The mortgage ends up getting bigger.
One thing to realise if you get into trouble with your mortgage is that you just cannot walk away from the problem by handing back the keys to the property to the bank or building society.
Many people in arrears also find themselves with negative equity -- where the value of the home is less than the amount owed on the mortgage.
This means that even if you hand back the keys you will still be responsible for the debt.
It is far better to come to an arrangement with the borrower than walk away or allow the property to be repossessed.
So, if you do get into trouble then the earlier you talk to your lender the better. There are options. Don't wait until you get into arrears.
If you get notice that you will be made redundant, talk to the bank immediately. The earlier you start restructuring your mortgage, the better. If you are due to be laid off, for example, let your building society or bank know as soon as you can.
All major mortgage lenders have signed up to the Irish Bankers' Federation Code on Mortgage Arrears that aims to treat arrears or potential arrears sympathetically and realistically. The Financial Regulator has also warned lenders recently to treat people in arrears reasonably.
Remember, if you don't tell them about your changed circumstances they won't know. Explain your situation openly and honestly, is the advice of the Money Advice and Budgeting Service (MABS).
Even if there is not a lot you can do, stay talking to the bank. Here are some options:
- A payment break.
Your lender may be prepared to give you breathing space to allow for circumstances to improve, if your difficulties are only likely to be short term.
- Reduce your repayments.
One way to reduce your monthly repayments is to extend the term of the homeloan.
If, for example, your mortgage has 15 years left to run, your lender may be willing to extend this to 20 years.
But be warned that even though your monthly payments will decrease, in the long run you will pay more back to your lender.
Alternatively, you can reduce the repayment even further by switching to an interest-only loan for a few years.
When your financial circumstances improve you can increase your repayments again to restart the process of paying off your mortgage.
- Add the arrears to your mortgage.
If you lose your job or illness prevents you making your mortgage repayments, arrears may build up.
Then when you get back to work you will face a large bill for the arrears.
However, your lender may be willing to add the arrears onto the balance of your mortgage. This is known as capitalising the arrears.
- Interest-only payments.
If your problems are hopefully short term, the lender may be willing to accept just the interest part of the payment.
This is only likely to benefit you if you are some years into a straightforward repayment mortgage, according to MABS.
