Help is at hand for the distressed mortgage-holder

FOR BORROWERS who find themselves in serious debt and at risk of having their home repossessed, there is help available.

In the first instance, worried borrowers should call their bank or mortgage provider. Felix O’Regan, Irish Banking Federation (IBF) spokesman, says it is crucial to talk to mortgage lenders as soon as difficulties arise. “Lenders will identify anything they can that will ease the repayment burden for a borrower,” he says, adding: “Repossessed property is the last thing a lender wants.”

When meeting a lender, the Irish Financial Services Regulatory Authority recommends that borrowers review their budgets beforehand to see how much they can afford to repay each month. Another resource for worried borrowers is the Money Advice and Budgeting Service (Mabs). The agency has identified 10 possible solutions for persons in danger of having their home repossessed.

1.Cash in insurance claims: Mortgages are often covered by payment protection in the case of job loss. If so, borrowers should claim as early as possible to avoid missing any time limits stated in the policy.

2.Maximise income: Borrowers should check they are getting all their social welfare and tax entitlements and identifying other ways of maximising income, eg letting a room with the lender’s permission.

3.Add arrears to mortgage: When a borrower has created a pattern of payments, lenders may be willing to add the arrears onto the balance of the mortgage. However, repayments will increase for the remaining lifetime of the mortgage.

4.Increase the term of the mortgage: If a mortgage has 12 years left to run, lenders may be willing to extend this to 20 years, for example.

5.Ask for a payment break: Lenders may be prepared to give breathing space to allow for circumstances to improve.

6.Ask for interest-only payments: When problems are short-term, lenders may be willing to accept just the interest part of the payment.

7.Switch loans: It may be possible to change from an endowment to a repayment mortgage. By giving up an endowment policy, borrowers may get a lump sum that can be used to reduce arrears. Again there may be costs involved.

8.Switch rates: Changing from fixed to cheaper variable rates may be an option, but look out for switch fees and penalties.

9.Consolidate loans: Borrowers may have the option of a re-mortgage with either their existing lender or an alternative company. With a re-mortgage, outstanding loans and the original mortgage are grouped into one new loan. This option can seem attractive because it lowers the total of the various instalment payments in the short term. But in the long term it has several potential downsides.

10.Sell your home or trade down: If there is little hope of finding a solution to their mortgage problems, borrowers may need to consider selling their house or trading down.