How can I avoid reposession?

With news coming in that repossessions are rising it is an opportune time to give our readers a few ideas of what you can do should you find yourself in difficulty. Repossession is always a last resort for a lender, they will generally not come out of the deal profitably, the person who bought the property will also come out a loser with a bad credit history to boot.

So what should you do if you think you may be have problems with your mortgage? First and foremost you need to contact your lender straight away once you feel there is a problem, ignoring the issue is the worst thing you can do because it means you will be passing by viable options and could arrive at a point where they no longer exist with the double whammy of still having problems, problems which will only escalate if not resolved.

1. Switch to an Interest Only loan: This may be an option on your home and it is vital to state in advance that you will pay more interest over the life of a loan with this type of mortgage, but on the positive side your monthly payments will drop (if you were on a repayment mortgage of course!) and this will help give you some breathing room. The repayments on an interest only loan service the ‘interest’ portion of the mortgage, there is no ‘repayment’ element to it. So if you had a loan on interest only for a year the amount you owe at the end of that year would be the same as the amount you owed at the start. Again, the one thing you may gain from this is some extra cash in hand which -when weighed up against the con’s of interest only on your own home- may be of better than the prospect of missing payments.

2. Contact a Debt Specialist: You may not realize it but the many brokers have a qualification called the QFA (Qualified Financial Adviser) this means that they are expert financial advisers and understand many aspects of money, investment, debt and general finance. Call your broker and find out if they offer a service such as debt structuring or general advice. The other alternative is to contact the state sponsored MABS (Money Advice Budgeting Service).

3. Take a ‘Payment Holiday’ or ‘Freeze’: This is where you don’t make any payment at all, it is not a great idea at the best of times as the interest gets added to the principle. This means your actual loan is increasing which is sometimes described as negative amortization. This should be in the list of last choices as you will owe more after the payment holiday than you did before it, at least with the interest only option described earlier the size of your loan is staying put.

4. Prioritise: You will need to prioritise your debts, the mortgage must come first because when all is said and done you have to keep a roof over your head. Credit card issuers may be willing to put your payment on hold or make the minimum payment for a while.

If you are having issues meeting your obligations don’t wait, the best way to avoid issues are to identify them early on and address them as soon as possible.

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