Introduction to Managing Arrears
If you suspect that you are about to fall into arrears with your mortgage, act fast and plan ahead. Speed really is of the essence. Refusing to admit that the situation exists or hoping that it will go away will do little to assist matters and it is absolutely vital that you get to grips with your situation.
Timing is Key
Most individuals will be more than aware that they are financially struggling, long before they find themselves defaulting on their mortgage. As soon as you become aware that you are unable to meet your monthly bills, contact your lender to arrange a meeting to discuss the situation. Whilst this is not a pleasurable experience, it will assist in the long run and will certainly add to your future credibility.
If you can come to some arrangement with your mortgage lender, this will not impact negatively on your credit rating and you will still be able to receive favourable mortgage rates, in the future.
Almost every debt publication that you read states that you should pay debts with the highest interest rate, first. This is only true if you are meeting your minimum payments on every debt, on a monthly basis. When you find yourself in the difficult position of being unable to meet monthly payments, the process of prioritising must be treated slightly differently.
Debts fall into two main categories, secured and unsecured. Unsecured debts tend to be those with a higher interest rate but are not actually secured on your property. Therefore, if you default, the lender cannot take your home or any other asset that you may have used as security. Conversely, a secured loan tends to be at a lower interest rate, but if you fail to make the payments then the asset that you offered as security can be taken by the lender. A mortgage is a secured loan, with your home as security. So, if you fail to make the minimum payment, you may find that the lender begins proceedings to repossess your house.
For this reason, it is absolutely vital that you make paying your mortgage your top priority, above and beyond other debts, every month.
Pay as Much as Possible
Even if you cannot make the entire payment, pay as much as you can while you try in the meantime to arrange an appointment with the lender to discuss the situation. Arrears will simply build up; if you miss a payment, it will remain due and will not be forgotten about or added to the end of your term. Consequently, you will have to make up any mortgage shortfall during the remaining period of your mortgage. The less you owe, the easier this will be to achieve.
As soon as you are aware that you may be missing mortgage payments, arrange a meeting with your lender to discuss options;
always prioritise your mortgage as this is a secured debt and you could lose your home if it is not paid;
even if you cannot pay the entire amount, make sure you pay as much as possible to keep the value of your arrears to a minimum.