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Dealing With Mortgage Arrears

To say that a person is in mortgage arrears is simply a way of saying that they have fallen behind on their payments. Arrears refers to the part of the debt that is past due. Falling behind on a mortgage can be a frightening experience. It is important too admit when it has become a problem in order avoid housing repossession.

When mortgage arrears occur, they should be eliminated as soon as possible. If this isn't possible on your current budget, than you will need to take some steps to resolve the issue. In most cases, a lender will be willing to negotiate a solution, so it is better to discuss it with them than to deny there is a problem.

Discuss it With Your Lender

The first step is to contact your lender and clearly explain to them that you are aware of the situation, and exactly what happened in order for you to end up in this situation. You will need to be honest about why your situation has changed, whether it is due to illness, job loss, death in the family, marital problems, etc.

If your home currently has a market value much higher than the amount of debt owed, the lender will often allow you to increase the term of your loan. This is something that you must discuss with them, however. You can't make this decision without their agreement.

Make a Plan

Review your budget and determine what you can actually afford to pay your lender each month. Look at your income and expenses, and find out what spending is necessary, and what isn't. If you find that you still can't make your payments, tell your lender what you can afford to pay each month. They may allow you to take advantage of one of the following two options:

Interest Only Mortgage - If you believe that your financial situation will improve in the future, you can switch over to an interest only mortgage. In this case, you make payments only on the interest, contributing nothing toward the principle.

Extended Term - If your payment record has been fairly good up until recently, your lender might agree to extend the term of the loan. This means that you would make smaller payments for a longer period of time.

It is important to realize that, while these options will reduce your short term costs, your long term costs will be increased because you will pay more in interest. Some like these options, others would rather sell their home. Either is better than repossession, or bankruptcy.