Cannot Repay Mortgage
What happens if you cannot repay your mortgage?
If you are behind on your mortgage repayments, your account will go into something known as ‘arrears.’ There are very serious implications if you miss your repayments so it is important that you are aware of the increase in costs, risk to your property and the impact on your credit rating.
We appreciate that one’s financial circumstances can change which means that you may not be able to keep up with mortgage repayments. It could be that due to an emergency expense or being paid late from work that you were unable to keep up. In the paragraphs below, we explain the outcomes of non-payment and what things to expect.
Repossession of your property
The bank or mortgage provider may repossess your property if you are severely behind on your repayments and no repayment agreement has been made after the lender has contacted you. Repossession of your property means that you will be asked to leave your estate and the bank will sell your property to the public to try cover the cost of your mortgage. This is a very serious outcome of falling behind on mortgage repayments and can be avoided by following our guidance for mortgage arrears help.
With regards to the repossession, the bank will pay you the difference if the house is sold for more than the outstanding balance you owe. However, if the house is bought for less than the repayment amount you owe, you will still be entitled to pay off the remaining debt. This is known as the shortfall debt.
Extra charges for late mortgage repayment
In addition to the outstanding balance you owe for your mortgage, lenders will charge further arrears fees due to late repayment. There are several different types of fees that may apply for late repayment.
A monthly arrears fee may be charged each month until the balance is cleared. This fee is intended to cover the cost of the lender following up your repayments including letters, phone calls and time taken to manage your arrears.
Solicitor or litigation fees may be charged if the lender takes legal action in order to secure your repayment. This may involve lawyer letters, personal visits to your home or if the case is taken to court.
Repossession fees refer to the costs incurred for the mortgage company managing your property once it has been repossessed and for organsing the sale of the property to cover the cost of your mortgage.
How much is charged for missing repayment will vary between each mortgage lender. The important thing to note is that there are additional charges that apply on top of the mortgage repayment that you already owe. Borrowers are advised to contact their mortgage provider in advance if they believe that they will have trouble repayment and the company may be able to offer forbearance such as a mortgage holiday or lower monthly repayments.
How mortgage repayments impact your credit score
Failing to repay your mortgage on time may negatively impact your credit rating. Your credit score is formulated based on how well you have paid current and previous loans including personal loans, credit cards and mortgages. Failing to repay on time causes may cause your credit score to fall. The information that you defaulted is sent from the mortgage lender to a credit reference agency such as Experian or CallCredit. This information is available to other lenders and may compromise your ability to gain finance elsewhere. The reason that the data is shared is to ensure that someone who has missed repayment has a mark on their credit file and is therefore not able to keep borrowing from different vendors.
An interesting thing to note is that failing to keep up with mortgage repayments will allow negatively impact the credit rating of other people involved in that mortgage. So if you have a joint mortgage with a spouse, family member or friend and you miss a repayment, it will also affect their score.
To avoid a negative impact to your score, repaying your mortgage payments on time will cause your credit rating to maintain its current status or allow your score to increase. By having a high credit rating, you are able to access finance much easier and at more competitive rates than those with bad credit.
The advertised rate is 1.95%. However this rate will not be available to everyone and will depend on your individual circumstances and the loan to value ratio of your mortgage. THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT. Some partners may charge you a fee for helping you find a Mortgage or Secured Loan or other services they provide. MAKE SURE you check with the company before agreeing to any service if they charge you a fee and what the terms are. Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk QuiddiCompare does not charge a fee and does not provide any financial advice relating to mortgages. However we may on occasion receive commissions from IFA’s and mortgage providers, brokers and intermediaries for introducing you to them. The content of this site is meant to be informational, and it should not be considered financial advice. – See more at: quiddicompare.co.uk/mortgages.