How to deal with mortgage debts

If you’ve been struggling to keep up your mortgage payments, you may have started to build up a debt. You may have missed one or more monthly payments or be paying less money each month than you owe.

You will need to work out a way to pay back what you owe. If you don’t and the debt continues to build up, your lender will take you to court and you may end up losing your home.

On this page, we tell you about some of the things you might be able to do to pay back the money you owe on your mortgage payments. These include:

• making extra payments on top of your usual monthly payments
• adding what you owe to your capital
• giving up your endowment policy to raise extra cash
• borrowing money to raise extra cash
• cashing in a mortgage payment protection insurance policy.

You may have other options for dealing with your mortgage debts than the ones mentioned on this page. For more information about these, see More options for dealing with mortgage problems.

Once you've worked out a way of dealing with your debt, you will need to come to an agreement with your mortgage lender.

For more information about how to come to an agreement with your mortgage lender, see Dealing with your mortgage lender.

If you don't have any options for paying off your debt or can't reach an agreement with your mortgage lender, you should get help from an experienced debt adviser straight away.

You should also get help if you’ve started getting letters from your mortgage lender threatening court action.

You can get debt advice from a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by e-mail, click on nearest CAB.

You might also find it helpful to look at What happens if your mortgage lender takes you to court.

Making extra mortgage payments

If you’ve got some money to spare each month, you may be able to pay back what you owe by making extra payments on top of your usual monthly mortgage payments.

To work out if you've got extra money to spare and how much, you will need to work out how much money you’ve got coming in to your household each month and how much you need to pay out on bills and other expenses. This is called working out a budget.

When you've worked out your household budget, including any extra income you can earn, you'll be able to see how much money you have left over to pay off your mortgage debt. You will need to write to your lender and explain what you’re proposing to do.

For more information about how to write to your mortgage lender, see Dealing with your mortgage lender.

Looking at your budget

If you've fallen behind with your mortgage payments, you will need to take a good look at your household budget. This will tell you if you've got any money left over which you can use to pay off your debt.

You will need to make a list of all the money you’ve got coming in and all the money going out of your household. This should include any other debts you owe. Make sure that the amounts you put down are realistic.

You can use the online budgeting tool to help you do this.

Think seriously about whether it's possible to increase the money you've got coming in or make cutbacks on your spending.

For example you may be able to:

• claim benefits or tax credits
• work overtime or take a second job
• take in a lodger or rent out a room in your home
• reduce the cost of household bills like water, gas, electricity or insurance.

There are lots of different ways to boost your income and spend less on your outgoings. For more information, see Budgeting. 

An experienced debt adviser can help you work out how much money you’ve got to pay off a mortgage debt and any other debts you owe. They can also advise you about ways of increasing your income and spending less money. You can get this advice from your local Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.

Adding what you owe to your capital

You might be able to clear your mortgage payments debt by adding the money you owe to your capital (the amount you borrowed) and paying it back over the remaining period of the mortgage. This is known as capitalising the arrears. You could also ask to extend the term of the mortgage in order to keep your monthly payments down, although you will end up paying a much larger amount in total.

Giving up your endowment policy

If you have an endowment mortgage, you could think about giving up your endowment policy or selling it off to an investor. This will provide you with a lump sum of money which you can use to help pay off the debt. However, you should think very carefully before doing this. You will need to find another way to pay off your mortgage loan and you will also need to find alternative life insurance cover. You will also need to find out whether there would be any penalties or other costs involved in bringing your endowment policy to an end. Get independent financial advice first.

If you’re sure that you want to sell your endowment policy, the Association of Policy Market Makers (APMM) can give you advice and help you sell your policy. You can contact the Association on 0845 011 9406, or look on their website at: www.apmm.org.

You will need to write to your lender and explain how you're proposing to clear your debt.

For more information about how to write to your mortgage lender, see Dealing with your mortgage lender.

Borrowing money

You could see if it’s possible to take out a loan, or borrow money from someone you know to help you pay off the mortgage debt. Don’t borrow money from someone you know unless you know them well and can trust them. Be careful not to borrow from loan sharks.

For more information about loan sharks, see Credit.

You will need to write to your lender and explain how you're proposing to clear your debt.

For more information about how to write to your mortgage lender, see Dealing with your mortgage lender.

If you take out a loan, check whether you can afford the repayments by working out your budget. It may also be a good idea to get advice from an expert debt adviser first.

You can get expert debt advice from your local Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.

Personal pensions for those over 55

You could take some of your pension money to help deal with your mortgage debt if you’re over 55 and have a defined contribution pension. ‘Defined contribution pensions’ are pension pots that are built up over time through regular payments.

You should consider the following before taking out some or all of your money:

• what costs you might have later in life, eg care costs – you might need your pension money to cover these
• how long you’re likely to live and whether you’ll need your pension money later on
• if you’ll have to pay tax on some of the money you take
• if you’re receiving benefits, they may be reduced or stopped if you take out some of your pension money

You should speak to a financial adviser before taking money out of your pension pot to pay off mortgage debt.

Mortgage Payment Protection Insurance

If you’ve lost your job or had a temporary loss of income, check whether you have mortgage payment protection insurance (MPPI). You may have taken a policy out at the same time as you got your mortgage or afterwards. The MPPI policy may cover your mortage payments if you can't work because of unemployment or sickness.

There are lots of circumstances in which, even if you have a payment protection policy, it won't pay out. You will need to check the terms and conditions of your policy carefully to see if you are covered. You may need to get advice about this.

You can get advice from your local Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.

For more information about payment protection insurance, see Payment protection insurance in Credit and debt fact sheets.

You can also go to the Money Advice Service website at www.moneyadviceservice.org.uk.

More options for dealing with mortgage problems

You may have other options for sorting out your mortgage problems, than the ones mentioned on this page.

For more information about your other options, see the following pages:

How to sort out your mortgage problems

Help with budgeting

Further help

Where to find independent financial advice

The following organisations can help you find an independent financial adviser:

Independent Financial Promotions (IFAP)

Website: www.unbiased.co.uk

Institute of Financial Planning (IFP)

E-mail: enquiries@financialplanning.org.uk
Website: www.financialplanning.org.uk

Personal Finance Society (PFS)

E-mail: customer.serv@thepfs.org
Website: www.findanadviser.org