Paying off your mortgage
can be hard at the best of times. For most people their monthly mortgage payment is the biggest cost they’ll have every month and the chances are it will take a big chunk out of their income. It’s not really surprising, therefore, that this can be the hardest debt to manage if your circumstances change and you find yourself in financial difficulties.
You might, for example, lose your job and find that you cannot pay your mortgage in full for a few months. Even this short space of time can leave you with a large debt here. Your lender may allow you to take a payment holiday for a while or to make reduced payments but, once you get back on your feet again, you’ll have to think about what you owe them.
Most people, once they have a steady income again, will be asked to pay back more on their standard mortgage payment every month until their arrears are cleared. This isn’t so much of a problem if you can afford the extra cost but it can sometimes be difficult to manage. In these gloomy economic times you may not have found a new job that paid as well as your previous one and things might be tighter financially.
In some cases your lender may agree an alternative solution. This involves bundling up the arrears that you owe and adding them on to your base mortgage loan. This will increase the size of your monthly repayments but this probably won’t be as big an increase. The length of your mortgage term will usually act to keep things lower cost in this scenario and you may also be allowed to extend that term to make things even easier.
may be called capitalizing your arrears by your lender. Bear in mind that most lenders will only to agree to this kind of solution once they’re convinced that you are on a firm financial footing once more. They may also ask you to have a period before you add your arrears to your loan where you make those extra repayments to see how things go.
Lenders will all have their own conditions here and their attitude towards this practice may vary. Most will only allow you to do this once. They will not encourage you to get into arrears and then add them back on to your loan on a regular basis. They are also only likely to allow you to do this if your property value makes it worthwhile for them -- it must be worth more than your remaining mortgage, for example.
Do bear in mind that you will end up paying more by bundling up your arrears this way than if you paid them off all at once. This may, however, be a quick and easy way to get back on a firm financial footing and to repay what you owe. On that basis, if you are in this situation, it may be worth talking to your lender to see if they can help you out.