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Mortgages

Mortgages can be a blessing and curse in relation to a debt problem

The blessing - when you have plenty of free equity in your home and you can raise money in the form of a mortgage or remortgage to assist in clearing a build up of debts.

The curse  - is when an existing mortgages monthly repayments are becoming increasingly hard to fund, more so if interest rates increase and repayments increase. If your income suffers from redundancy, illness or reducing working hours then the problem quickly become a major dilemma.

To combat the problem look at

• Increasing the mortgage term, thereby reducing monthly repayments

• Apply for a "further advance" often with a minimum loan value (often £20,000 or more) some which can be "drawn down" as needed.

• Refinancing the mortgage ideally at a better interest rate (ideally fixed for a period of time) preferably over a short repayment period which can potentially be cheaper than your current rates. Many offers include legal and valuation fees making the "remortgage" very attractive. You can include a further capital sum to help discharge debts.

With refinancing bear in mind that ability to repay is as critical as the value of the property in terms of equity value. "Self certification" of income schemes are available but have the danger in people over committing themselves where their "real income" has been over exaggerated in the application.

If you run into long term mortgage arrears the lender may well attempt to repossess the property used as security, and this may be a forced sale, often at auction. Before things get that bad you should consider the possibility of offering the property with an estate agent yourself putting you more in control of the selling price and moving time scales.

Properties which are repossessed may be in a poor condition and neglected and thus make low prices, even get into a "negative equity" situation where the amount realised from sale (less costs of sale and legal expenses too) is LESS THAN the amount outstanding on the mortgage. As such the loss is recoverable from the borrower, although this may be difficult as their main asset has now been sold.

If you have a reasonable amount of equity in your home you should be able to take alternative steps to avoid a repossession provided you look at and act on options well before things get too bad i.e. sell, remortgage or take a secured loan out. 

Funding a new mortgage or loan needs to be considered in the long term as much as the short term. There is little point in borrowing money for 10 years to repay debts for short life assets (TVs) or leisure purchases (holidays) although possibly there may be limited opportunities for alternatives.

Do use the other pages and web links across this web site to consider carefully all the options before making any long term decision which you may later regret. Do shop around for the best finance deal, take advice from a neutral, non biased person, and discuss the proposed actions with your partner (who may be jointly owning the property) and family before making any decision which you may later regret if made in haste without proper thought.

Useful web sites

An overview of how mortgage lenders currently deal with mortgage arrears and possession cases http://www.cml.org.uk/pub_info_arrears