You are in mortgage arrears and decided to take control. Well done, you’re taking the first steps to resolving the mortgage arrears on your home.
You’ve been in mortgage arrears for a while and want to know what solutions are available. The good news is that there are many possible restructures or arrangements available. Depending on your personal circumstances and financial capabilities, one or a combination of the below solutions may help to restructure your mortgage.
It’s important to note that no two borrowers’ situations are the same and a resolution could be a hybrid or a combination of these solutions. A dedicated expert working with Abhaile, such as a MABS Dedicated Mortgage Arrears (DMA) adviser or a Personal Insolvency Practitioners (PIP) will review your situation to find the best solution available. The adviser will work with you to keep you in your home, wherever possible.
In the limited circumstances, where someone does have to surrender their home, they will be guided through the process by their adviser. They will not be left to fend for themselves. Let’s take a look at the most common solutions available.
This is an arrangement where some or all the outstanding arrears are effectively added to the remaining mortgage balance. This means that it will then be repaid over the life of the mortgage. Arrears capitalisation is a common solution to mortgage arrears and is often used with Term Extension or Reduced Interest Rate.
Where the borrower only pays the full interest on the mortgage for an agreed period. This payment will only cover the loan interest and does not have any effect on reducing the loan amount or “capital”. This can be used to give the borrower breathing room or as a trial arrangement to allow the borrower to prove that they can meet a repayment schedule.
Interest Rate Reduction
A borrower might find themselves on a high interest rate, some mortgage rates can be up to 9%. A borrower may have capacity to make payments if the interest rate can be lowered. The mortgage lender might agree to this for a fixed term.
Under MTR, a borrower gets to stay in their home and agrees to give ownership of the home to the MTR provider. This means the borrower becomes a social housing tenant of their local authority or Approved Housing Body (AHB). This arrangement is entered into voluntarily and agreed between the borrower, their lender and the MTR provider. After five years have passed, the borrower might be given the option to buy the home back if they are in a position to do so. This option can be used as part of a PIA to fully return a borrower to solvency.
A reduced payment may form part of an overall longer term arrangement agreed between the borrower and the lender. It might result from a term extension, a temporary or permanent interest rate reduction, or a temporary measure agreed for a set period.
A borrower might be offered a split mortgage if their financial circumstances in the future are set to improve. For example, a person who has a lump sum payment from a private pension. This might be referred to as a warehoused mortgage.
Lower repayments are agreed on the first part of the mortgage and the second part is warehoused or set aside to be paid at a later defined date. Some lenders may write off part of the warehoused loan (for example to bring it to Current Market Value (CMV) of the home), some may add interest to the warehoused part of the mortgage and others do not.
Temporary Interest Rate Reduction
Where the interest rate on the borrower’s home loan (for non-tracker mortgages) can be reduced for a short period of time. This can sometimes be written into an agreement as part of a permanent statutory solution.
Trade Down Mortgage
Where a borrower sells their existing home and trades down to a lower value property. Under this arrangement, part of the negative equity (if any exists) can be incorporated into the new home loan or “warehoused” until the borrower’s financial position improves.
If a borrower is experiencing difficulties making mortgage repayments, their lender may be willing to extend the term of the mortgage. This would reduce the amount a borrower pays back every month. But as the term of the mortgage will be longer, the borrower will pay more interest over the life of the loan.
As previously mentioned, it is not always possible to find a solution that will keep the borrower in their home. Thankfully these situations are limited and before any consideration is given to surrendering the home, a borrower should be sure they have investigated all the statutory solutions available to them through a PIP. Early engagement with the supports available will increase the chances of a positive outcome.
There are two options available to you if selling or surrendering your home is the best outcome.
Assisted Voluntary Sale (AVS)
The lender provides support and assistance to the borrower to sell the property at the best-selling price, keeping the costs as low as possible.
Voluntary Surrender (VS)
The borrower agrees to voluntarily hand over ownership of the property to the lender. The lender will actively market and sell the property to achieve the best sale price.
What should a borrower in mortgage arrears do?
A borrower in mortgage arrears has two options, they can approach their lender on their own and try to negotiate an arrangement, or they can access the expert services available FREE through Abhaile. It is extremely important borrowers get the right advice when it comes to any solution, as different lenders have their own ways of dealing with all the above.
An arrangement achieved through Abhaile will be affordable and return the borrower to solvency. This means that the monthly repayments will be measured against their personal circumstances and calculated on the borrower’s affordability using a legal tool called Reasonable Living Expenses. The resolution will be tailored to that borrower and is unique to them.
One thing you should not do is ignore the issue of mortgage arrears on your home. Remember, you are not alone and there is no shame in being in arrears. The advisers in Abhaile are expert at what they do, and are working with people just like you every day achieve a positive outcome.
If you are in mortgage arrears and fear you are at risk of losing your home, call the MABS dedicated Helpline on 0818 07 2000, message us on WhatsApp 086 035 3141 or find your local office to make an appointment.
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