5 Tips On How To Handle Mortgage Debt

Many people from all walks of life dream of owning their own home one day. There is something fundamentally satisfying when you know that the place you are living in is entirely and completely yours. However, achieving this goal has become increasingly difficult with each passing decade. Nowadays, homeownership often comes with the burden of taking on mortgage debt. No matter how exhilarating the prospect of owning a home could be, remember that it will likely impact your financial outlook for years to come.

Indeed, being unable to stay current with your mortgage payments is an unfortunate reality for many. Under these circumstances, you could find yourself starting to accumulate a type of debt known as mortgage arrears. This could be a result of missing one or more monthly payments entirely or by consistently paying less than the required monthly amounts.

Taking swift action is strongly recommended, but it might require devising a solid repayment strategy. Before committing to anything, discuss your options and possible ways forward with professional insolvency practitioners or financial advisors. The experts could prove indispensable in helping you pick the best and most suitable course of action. Otherwise, simply letting the debt continue to grow unchecked could have devastating consequences and, in some instances, could even lead to your mortgage lender deciding to initiate legal proceedings.

Reexamine Your Budget

The first step when you are having difficulties meeting your mortgage payments is to take a moment and thoroughly assess the state of your current household budget. Having a complete grasp of your finances is incredibly important. After all, statistics show that personal debt, including mortgage, is continuing to rise.

Start by compiling a comprehensive list of finances, both incoming and outgoing, within your household. Do not forget to include any additional outstanding debts you might have. All information should be as accurate and up-to-date as possible in order to create a realistic picture of your current financial state. Using a dedicated budgeting tool is not necessary, but could make the process a bit easier.

When you have your monthly finances in front of you, go through each entry. The goal is to identify several key points. First, figure out the difference between the money coming into your household and what you spend in a month. Next, you must look for ways to bridge that gap and stay in the green at the end of the period. Typically, there are three main paths that you could try.

To increase your available funds, explore the possibility of establishing additional income streams. More realistic, however, is to find areas in your current expenditures that you could reduce or outright eliminate. Keep in mind that deciding to skip going out as much as you are used to could negatively impact your well-being, but getting out of your financial troubles is typically much more important. Settling on a combination of the two approaches may also deliver the necessary results without too many disruptions to your current lifestyle. It may also be wise to take advantage of any benefits or assistance programs that you might be eligible for.

Restructure Your Current Mortgage

An alternative option is to modify the terms of the existing mortgage agreement itself. Doing so could lead to a sizable reduction and the eventual clearance of the already accumulated mortgage debt. However, any proposed changes must be approved by the mortgage lender as well. In addition, not every option may be available due to your specific circumstances.

Another crucial moment is to ask your lender about any charges that may be applied as part of the mortgage restructuring. For instance, there could be a ‘redemption fee’ for terminating a fixed-term mortgage before the set date or an ‘administration charge’ for modifying the terms and conditions of the deal.

As a start, you may want to consider the option of simply incorporating the currently outstanding debt into the initial mortgage borrowing. Doing so will spread the repayment of the debt over the remaining mortgage duration. This process is known as capitalizing the arrears. A significant downside that should not be overlooked, is that this plan will result in higher monthly payments. If you are not expecting your financial state to improve dramatically in the near future, you may wish to look for other arrangements.

Other Mortgage Debt Restructuring Plans To Consider

Instead of increasing the monthly payments, you could try to extend the time of the mortgage deal itself. By increasing the overall period, you can lower the current required payments, making it easier on your financials. Any funds you manage to save up could go towards paying off the mortgage arrears. However, the prolonged timeframe will lead to added interest and a higher overall repayment amount.

Potential short-term solutions include asking for a period where you would be repaying only the interest of the outstanding amount, stopping making payments altogether, or agreeing on reduced monthly amounts. If the lender approves any of these proposals, it could have an immediate and significant impact on your financial burden. Just keep in mind that in the case of the interest-only payments option, the principal sum that is owed will not be affected and will remain unchanged.

Get A Home Equity Loan

Securing a home equity loan could be of great assistance and help struggling homeowners who cannot make their monthly mortgage payments. While undoubtedly a helpful tool, this type of loan is only available if you have significant equity in the house. In more practical terms, the value of the home must be higher than the amount you still owe on it. If you meet the requirements, you should definitely explore the option of a home equity loan. In many cases, the banks will cover all of the closing costs associated with home equity lines. The resulting savings could then be used to reduce the principal balance of the loan that much quicker.

Borrow Money From Reliable Sources

To keep afloat in the short term and prevent the outstanding mortgage debt from reaching unmanageable levels, you could also try to borrow some additional funds. However, don’t fall for the tricks of loan sharks who offer fast and easy loans, but then saddle you with massive interest payments. Always make sure to do extensive due diligence and that the lender is authorised by the appropriate agency to perform financial services.

Loans used specifically for the repayment of mortgage debt are often secured by the property. This is extremely important because in the case you fail to make the required payments, your home could be targeted for repossession. That is why consulting with a financial adviser is heavily recommended, as they will guide you through legal terms and help you choose the best option for effectively managing your mortgage arrears.