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Methods of repaying your mortgage arrears

You will usually have to offer an extra monthly payment to clear the arrears. Your lender will sometimes ask you to clear the arrears over one or two years. If you can't afford this, ask for a longer time. If you can't clear the arrears within the time required, start paying the amount you have offered anyway. Explain why you can't pay the amount they have asked for - make sure you mention any change in circumstances such as long-term illness, birth of a child, relationship breakdown or unemployment.

If the value of your home is far more than the total mortgage, tell the lender. The more your house is worth, the less risk your lender is taking.

Sometimes your lender may agree a different arrangement. Some of these are:

Tip: Don't be tempted to take out an extra loan to repay your mortgage arrears. Often these are very expensive and could put your home at greater risk.

Adding the arrears to your mortgage
This is called 'capitalising' the arrears. It works like this: the amount of the arrears is added to the total mortgage. The monthly repayments are increased to take account of this. So the arrears are spread over the remaining years of the mortgage term. This is usually only allowed if the total value of your house is a lot greater than the remaining amount of the mortgage.
Increasing the term
Most mortgages are paid over a term of 25 years. If you bought your home several years ago, you can ask your lenders to extend the term back to 25 or even 30 years. This will cut the monthly payments, so that you can afford to pay an additional monthly amount for arrears. If you have an endowment mortgage, this may be more difficult. Ask your lender.
Changing to a repayment mortgage
If you have an endowment mortgage you may be able to change to a repayment mortgage. Endowment mortgages include an insurance policy and if you have had this policy for a few years it may have a surrender value. The surrender value is the amount of cash the policy is worth if you cancel it.

Ask your lenders about this and get independent advice on whether:

  • it is a good idea to cash in or sell your endowment policy;
  • changing to a repayment mortgage will reduce your monthly payments.

If you cancel your endowment policy, ask your lender about a mortgage protection insurance policy. This would pay the mortgage if you died.

If you do change to a repayment mortgage you should also ask your lender to extend the mortgage term.

Tip: If you are thinking of surrendering your endowment policy or changing to a repayment mortgage you should always seek independent financial advice. Click here for a list of independent financial advisers in your area.

Paying off the interest only
If you have a repayment mortgage you could ask your lender to accept a monthly payment that just covers the interest on the loan. This will have to be a temporary arrangement. If you already have arrears your lender will expect small monthly payments for these too.

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