Introduction

Ensuring that mortgage payments are met is one of the most essential elements for keeping your home and avoiding repossession and with a little forward planning it is possible to stay on top of mortgage payments even in a difficult economic climate when the threat of redundancy is looming on the horizon. We offer some essential mortgage payment tips that are both practical and effective in enabling you to meet your obligations to a mortgage lender.

1. Overpayments

Consider making overpayments on your mortgage whenever you have spare cash available as this will help you to build up a reserve that you can draw upon in the future if it becomes difficult to meet monthly mortgage payments. Whilst it is true that a mortgage debt may be vast even small overpayments can make a difference over time and it will help keep down the interest that you are charged on your mortgage, meaning that you will pay less overall in the long term. There are normally two options available when making an overpayment. Option one is to reduce your monthly mortgage payment with the overpayment amount that you make. This means that you might pay a little less on your mortgage payment each month. The second option is to ask for your mortgage payment to be taken off the mortgage capital amount. This option means that your monthly payments will stay the same but that you will reduce the original mortgage capital amount (or loan amount), which means that you will be charged less interest in the long term. This second method also means that you are likely to reduce the length of time over which you mortgage is paid and are likely to end up paying it off more quickly.

For example Option 1 - Monthly Payment Reduction

You currently pay £600 per month for your monthly mortgage payment. But in the last year you made overpayments totally £1000 on your mortgage. By opting for the monthly payment reduction your mortgage lender calculates that you can now make monthly repayments of £598.00 per month.

Option 2 - Reducing the Capital Amount On Your Mortgage

Your total mortgage loan or homeowner loan amounts to £150,000. But in the last year you made overpayments totally £1000 on your mortgage. You therefore reduce the original capital amount by £1,000. This means that you will be charged interest on £149,000 rather than the original £150,000, meaning that you reduce the amount of interest being charged to you by your lender on a daily basis, thus paying off you mortgage more quickly.

2. Make More Mortgage Payments When Interest Rates Are Low

If you are on a variable rate mortgage then consider making additional mortgage payments or overpayments when interest rates are low. It is the ideal time to make use of the spare cash that you have available and whilst it may be tempting to use that money for other purposes, remember that if interest rates increase in the future you will have less available cash and your mortgage payments will increase. By doing this you will help to put yourself in a strong position for when you experience difficulties in your personal finance. Pay down debt now to avoid problems later.

3. Avoid Mortgage Payment Breaks

Mortgage payment breaks or mortgage holiday periods as they are sometimes referred to were devised by mortgage lenders to give borrowers up to 3 months respite on mortgage payments. Whilst this seems like a tempting idea especially if you were thinking of travelling or if you are struggling to meet mortgage payments, they are best avoided. Essentially mortgage payment breaks are just another way for mortgage lenders to make money, as borrowers will still be charged interest on their mortgage during the payment break. Because you will be paying nothing during that payment break, the amount of interest charged will increase meaning that you pay more in the long term.

Example : You have a mortgage of £100,000 and you are making monthly mortgage payments of £600 per month. You take a 3 month payment holiday meaning that for that period you avoid having to make payments of £1800 (£600 x 3). This means that for that 3 month period you will be charged interest on an additional £1800 that you would normally have paid back had you not taken the payment break. Depending upon your mortgage deal this could equate to hundreds of pounds additional interest being added to your mortgage.

4. Mortgage Payment Arrears

If you fall behind with your monthly mortgage payments talk to your mortgage lender at the earliest opportunity. This is important because if you delay you may find yourself in deeper financial problems. Talking to your lender immediately may enable you to find a solution and most mortgage lenders will be willing to negotiate a mortgage arrears payment plan to run alongside your usual mortgage payments, so that you do not have to find the full payment in addition to your next monthly payment. However if you do not talk to your mortgage lender and miss further mortgage payments then they are more likely to seek repossession.

For example. You currently pay £600 per month on your monthly mortgage payment, but miss a payment. A mortgage payment plan is agreed in which you can pay an extra £50 per month for 12 months in addition to your monthly mortgage payment of £600 to make up for the missed mortgage payment. This means that you do not have to find two mortgage payments of £600 for the following month to catch up.

For more information read our detailed guide entitled How To Deal With Mortgage Arrears.

5. Check Annual Mortgage Statements

Just like your credit card statements you need to ensure that you read your annual mortgage statement to ensure that all of your mortgage payments have been registered and that the figures on the statement are correct. Failing to do so may mean that you end up paying more money because of inaccuracies on your mortgage statement. Normally it will list all the payments received in that year long period, the current mortgage balance or outstanding mortgage amount and the interest charged to you during the period.

6. Check Bank Statements

Checking your bank statements on a monthly basis is also essential for two reasons. Firstly it will quickly identify any missed mortgage payments or payments being taken twice in error and as such you can address these quickly rather than waiting for your annual mortgage statement. The second reason is that if a mortgage payment has failed to go out from your bank you can query this immediately. Failing to meet a mortgage payment, even due to an error may leave you open to possible repossession and/or leave a bad mark on your credit record, so ensure that you check for yourself. A bad credit history can lead to you paying more for credit in the future or even getting turned down for future loans or credit agreements.

7. Do Not Use Credit Cards To Make Mortgage Payments

Credit cards are the most expensive form of debt with many APR rates as high as 30%. No matter how desperate things become never make a mortgage payment or overpayment on your credit card as you will be digging yourself into deeper debt. Instead speak to your mortgage lender and discuss any issues concerning your ability to make a mortgage payment as they are likely to be able to offer a mortgage arrears payment plan.

8. Check Your First Mortgage Payment

When you take out a new mortgage or complete a remortgage ensure that your first mortgage payment is correct. Usually this is made up of the first monthly mortgage payment plus interest for that first month, meaning that it will be a larger payment sometimes double what you would expect. Make sure the correct amount has been taken and also ensure that you factor this into your monthly personal finance budget as it can be a shock to the system.

9. Mortgage Payments and Relationships

If your relationship ends do not assume that mortgage payments will still be made by your ex partner or spouse, it is important that you check with the mortgage lender directly to ensure that they are still receiving regular mortgage payments. Remember that if your name is jointly on the mortgage and payments are not received this will still effect your credit history and thus your ability to get credit in the future.

10. Mortgage Payments and Key Facts Documents

When you receive a quote for any mortgage from a lender you will also receive a key facts document which will outline the main feature of your mortgage. This will include the total amount that will be repaid over the course of the mortgage, your predicted monthly mortgage payment, the mortgage rate and other elements essential to helping you make an informed decision about whether or not to proceed with your mortgage. It is critical that you read through this document and check that the mortgage payments stated are correct and also factor in the amount by which your mortgage could increase if the interest rate increased by up to 2%. This is important because whilst you could afford your mortgage payments now, it is essential that you do not overstretch your personal finances.

11. Alternative Mortgage Payment Options

If meeting monthly mortgage payments is becoming increasingly problematic then consider downsizing your property or moving to a cheaper area in order to make your mortgage payments more manageable. Be willing to be flexible and adjust to changes in your personal finances if you want to ensure that you do not slip into arrears with your mortgage payments and face the potential of repossession.

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