How to stay out of mortgage trouble

Big decision

This week, it was reported that over one million British consumers use their credit cards to cover mortgage and rent payments. These shocking statistics could signal a serious rise in debt problems in Britain in the near future as more people struggle to keep up with repayments. Here, we advise you on the best ways to keep up with mortgage repayments.

A recent survey by housing charity Shelter has revealed that 6% of householders use their credit cards to cover their mortgage repayments, thereby breaking the first commandment of debt management: Do not borrow to pay off your debts.

More serious is the fact that by using your credit card to cover remortgage repayments, you are using credit that costs in the region of 20% APR to pay off one of the cheapest forms of credit you can get. This is one of the worst things you could do. But thankfully, there are other options available.

Earlier this week, we advised on how to manage debt problems in general. Here, we will focus on managing mortgage debts.

If you find yourself struggling to keep up with your mortgage repayments, do not bury your head in the sand. The earlier you take action, the better. Approach your lender and explain that you are finding it difficult to keep up with repayments. Ask for a repayment holiday or for reduced payments until you can get back on your feet. More often than not, your lender will respect you for making a genuine effort to address the problem and will be willing to compromise.

Alternatively, you could seek the help of a debt counselling agency. There are many charity and private agencies that will be happy to give you advice, and help you set up a debt management plan or an IVA if needed.

You should also take a close look at your household budget to see where you can save money. Look at how much you are spending on insurance, food, utilities and socialising. Most likely, you will be able to find cheaper alternatives.

Can you make more money? Look out for opportunities to supplement your income. Consider taking on some extra part time work or looking for a job that pays you more. Or if you have a spare room, consider taking in a lodger to make some extra cash.

If you feel you may struggle to keep up with mortgage and other debts in the future, but still have a good credit rating you should consider a remortgage, especially if you are currently paying your lender’s variable interest rate.

A remortgage could save you up to £100 a month in repayments. You could also use a remortgage to consolidate your debts. This should also reduce your monthly outgoings as your remortgage interest rate will be much lower than, say, a credit card and the repayments will be spread out over a long period of time. However, you will need some cash to cover the initial costs of remortgaging such as arrangement fees and legal fees.

In a worst case scenario, you may have to resign to the fact of losing your home. If this is the only choice, be sure to sell the house yourself at its proper market value. You will lose out if you let your lender repossess and sell it for you.

Another option where you sell your house but live in it as a tenant is known as a sell-and-rent-back scheme. We looked at the pros and cons of these schemes in a recent article and feel that they are probably not a good idea. Click here to read the full article.

If you are struggling to keep up with your home loan repayments, borrowing from your credit card to cover your mortgage is probably the worst thing you could do. Try out some of the suggestions above to help keep your head above water.

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