If you lose your job and qualify for state help with your mortgage payments, you’ll have been told that the mortgage rate used in the calculations was reduced on October 1st 2010 to just 3.63%. Under the rules people who are unemployed can claim help with mortgage interest payments (but not repayment of capital) on mortgages up to £200,000. Previously the interest rate used to calculate mortgage support was 6.08%.
What can you do?
There are almost a quarter of a million people receiving mortgage interest support and the debt advice charity Stepchange says that if you have a £100,000 mortgage your support payments will fall from £507 a month to £325 a month. Your best advice is to:
– Ask your lender if they’ll defer the part of your mortgage that you’re not able to pay. They’re under no obligation to do this but they should be sympathetic.
If you’ve lost your job
Not everyone who loses their job is eligible for help with mortgage interest support, but you may be able to get your mortgage lender to reduce your mortgage payments temporarily. They may:
– Move you onto an interest-only loan. If you’re on a repayment mortgage your payments will reduce significantly by switching to interest only.
SAVVY TIP: If you have a £200,000 mortgage over 25 years at an interest rate of 5.5% you’d pay £1170 on a repayment basis and £834 on interest-only. You can find out how much you’d save by switching to interest-only at SavvyWoman’s mortgage calculator, provided by mortgage brokers John Charcol.
– Underpay your mortgage for several months. If you have a flexible loan you can often easily over and underpay your mortgage. If you’ve lost your job you may not be allowed to take a mortgage holiday (where you don’t make any payments at all, for a limited period), but you may be able to reduce your payments. If your mortgage is a standard non-flexible one it will be down to the mortgage lender’s discretion.
– Extend your mortgage term. Your lender may let you extend the term of the loan to bring your payments down.
SAVVY TIP: David Hollingworth of mortgage brokers London and Country says that lenders will expect to reduce mortgage payments only as a last resort. “I’d advise contacting your lender as soon as possible, but you should go to them with information about what your expenses are and how much you can afford. They will probably expect you to make cutbacks elsewhere on ‘non priority’ payments first.”
Claiming on insurance
If you have a mortgage payment protection insurance policy your payments should be covered for a limited period, typically a year but sometimes two years. However, there are some things you should watch out for:
– You normally have to register for unemployment benefits to trigger the payment.
– Make sure that both of you are covered on joint mortgages. I had a question about this in the ‘ask the experts’ section where someone discovered that only her husband was covered by their mortgage protection policy (you can read the answer here).
SAVVY TIP: Some mortgage lenders or insurers routinely only put the person who’s ‘first named’ on the mortgage on a mortgage payment protection insurance policy, which means the other person won’t be able to claim if they lose their jobs.
– There may be a shortfall on your insurance payment. Your mortgage payment protection insurance policy will have been set up to pay so many hundred pounds in benefit a month. If you’ve either taken on a bigger mortgage or switched to a much more expensive mortgage deal you may be left with a shortfall.
If you get into arrears
If you’re getting behind with your mortgage payments and you haven’t got in touch with your mortgage lender you should make that a priority.
SAVVY TIP: Mortgage lenders are supposed to be sympathetic and try and help borrowers to come up with a solution that will ensure they can remain in their homes, however, I’ve had emails from a couple of women who say that their lender hasn’t been helpful at all.
– Find out what mortgage lenders are supposed to do. The MoneyAdviceService website has a section called problems paying your mortgage.
– Contact a debt advice charity if you need help. Stepchange has a specialist mortgage arrears and repossessions service, which will be able to give you help and advice free of charge.
– Be aware of the rules around repossession. Mortgage lenders and the government agreed a set of rules on repossessions during the credit crisis to make sure that the number of people who might lose their home would be kept to a minimum.
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