Struggling with the Mortgage

Mortgagee sales are on the increase. High levels of debt combined with interest rate rises are finally starting to bite. If you are struggling with your mortgage payments how can you avoid selling (or worse, being forced to sell) your house? There aren’t an endless number of options, but here are a few tips that could help.

One of the first things you should do is talk to your lending institution or a mortgage broker. The last thing your lender wants to do is sell your house in a mortgagee sale, because it is an expensive and troublesome process. Your lender should be willing to work with you to find solutions to your repayment problems.

Most lenders offer repayment holidaysof up to 90 days, which may be enough to let you build up your reserves or pay off other short term debt so that your weekly outgoings are not as great.

Another option may be to convert your mortgage to one where only the interest is payable, that is, an ‘interest only’ mortgage. This will have the effect of reducing the amount of your repayments because you are not paying back principal.

Yet another option is to extend the term of your mortgage, say from 20 years to 25 years, which will also have the effect of lowering your repayments.

All of these options should be seen as short term solutions because ideally you should pay off your mortgage as quickly as possible.

A mortgage broker may be able to help you shop around for a mortgage at a lower rate of interest, however bear in mind that depending on your circumstances, there may be penalties involved in repaying your existing lender, so get this information from your lender first.

If your mortgage is on a high variable rate, you may be able to fix the rate at a lower level. The length of time that you fix the rate for is an important decision because if interest rates drop again and you decide to sell your house or refinance your mortgage you may incur a large penalty.

Aside from your mortgage payments, look at other ways of reducing your outgoings.

An obvious thing to do is to take a close look at your budget and see if there is anything that you can cut back on. If you are not sure how to do this, contact your local budget adviser for assistance.

Selling luxury items or household goods that you don’t need is preferable to selling your house. Perhaps you have a late model car that you could exchange for a cheaper model, a boat or caravan that doesn’t get a great deal of use, or children’s toys that have been outgrown.

Look at ways of increasing your income. This could include finding a higher paying job, taking on additional part time work, asking for a wage increase, taking in a boarder, or setting up a small business that you run from home.

Selling your house because you can’t keep up the mortgage payments should be a last resort.

Real estate agent fees, legal fees and removal costs will eat into your deposit, and there is always the uncertainty of whether property prices will move ahead even more by the time you can afford to buy again.