Debt from Mortgage Shortfalls
If the lender from whom you have mortgaged your home repossesses it, they will sell it in order to get the money they have lost back. In the instance that the house sells for less than what you owe on it, the lenders will require you to pay back the remaining debt. This is called a ‘mortgage shortfall’ and is no longer considered a ‘priority debt’ because the lender can’t claim your possessions as assets. However, they will often attempt to cover the debt for up to 12 years. This article is intended to help clarify options available for those who are being asked to make a mortgage shortfall.
When you are worried you may fall behind on your mortgage repayment schedule or even end up failing to meet the repayments altogether, you will want to get in touch with your lender as soon as you can. Most lenders will try to help you using procedures they have developed for handling payment troubles. The vast majority of mortgage lenders are exceptionally keen to assist their customer base work through payment issues without adding humiliation to the process.
Depending upon your history in making payments and whether you face long or short term difficulties, your lender may agree to one or more of the following:
- They may lower your payments for a certain length of time
- They may limit the time they charge you interest during instead of billing for both capital and interest
- They may offer a ‘payment holiday’
- They may reduce your payments by extending the length of your mortgage
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If you’re struggling to make the payments and depending on your payment history and whether your difficulties are likely to be long or short term, your lender might agree to:
reduce your payments for a set period
charge you interest only for a while, if you’ve got a repayment mortgage (usually you pay capital and interest)
give you a ‘payment holiday’
extend your mortgage term to reduce your payments
For Those with a Mortgage That Began On or After 31 October, 2004
Most mortgages taken out after this date are regulated by the Financial Service Authority (FSA) and under FSA rules, lenders must send you regular statements to inform you of your current position as far as arrears. Lenders must also treat you fairly in spite of your circumstances. The FSA also has rules on what must be done if your home is ever repossessed.
The Financial Service Authority (FSA) regulates most mortgages taken out from this date. Under FSA rules lenders must treat you fairly and send you regular statements to keep you informed about your current arrears position. There are also rules covering what the lender must do if it intends to repossess your home.
How to Deal With Mortgage Related Debt
For those facing debt due to an inability to make their mortgage payments, an IVA (Individual Voluntary Agreement) can be an excellent solution. It will allow you to pay down what you owe over time instead of potentially losing your home. Learn more about IVAs and help ease the stress that a mortgage in jeopardy can bring.
