You will usually have to offer an extra
monthly payment to clear the arrears. Your lender will sometimes ask
you to clear the arrears over one or two years. If you can't afford
this, ask for a longer time. If you can't clear the arrears within the
time required, start paying the amount you have offered anyway. Explain
why you can't pay the amount they have asked for - make sure you mention
any change in circumstances such as long-term illness, birth of a child,
relationship breakdown or unemployment.
If the value of your home is far more than the
total mortgage, tell the lender. The more your house is worth, the less
risk your lender is taking.
Sometimes your lender may agree a different arrangement.
Some of these are:
Tip: Don't be tempted to take out an extra loan to
repay your mortgage arrears. Often these are very expensive and
could put your home at greater risk.
Adding the arrears to your mortgage This is called 'capitalising' the arrears. It works like this:
the amount of the arrears is added to the total mortgage. The monthly
repayments are increased to take account of this. So the arrears are
spread over the remaining years of the mortgage term. This is usually
only allowed if the total value of your house is a lot greater than
the remaining amount of the mortgage.
Increasing the term Most mortgages are paid over a term of 25 years. If you bought
your home several years ago, you can ask your lenders to extend the
term back to 25 or even 30 years. This will cut the monthly payments,
so that you can afford to pay an additional monthly amount for arrears.
If you have an endowment mortgage, this may be more difficult. Ask your
Changing to a repayment mortgage If you have an endowment mortgage you may be able to change
to a repayment mortgage. Endowment mortgages include an insurance policy
and if you have had this policy for a few years it may have a surrender
value. The surrender value is the amount of cash the policy is worth
if you cancel it.
Ask your lenders about this and get independent
advice on whether:
it is a good idea to cash in or sell your endowment
changing to a repayment mortgage will reduce
your monthly payments.
If you cancel your endowment policy, ask your lender
about a mortgage protection insurance policy. This would pay the mortgage
if you died.
If you do change to a repayment mortgage you should
also ask your lender to extend the mortgage term.
Paying off the interest only If you have a repayment mortgage you could ask your lender
to accept a monthly payment that just covers the interest on the loan.
This will have to be a temporary arrangement. If you already have arrears
your lender will expect small monthly payments for these too.