In this brief guide, we are going to discuss what happens if you missed a mortgage payment.
What Happens If You Miss a Mortgage Payment?
If you miss a mortgage payment your mortgage lender will report this to the four credit bureaus in the UK. Your mortgage lender may also charge you a fee (after a grace period of about 1 to 2 weeks) for missing your mortgage payment.
Once you miss a mortgage payment your mortgage will be considered as being in arrears.
If you are in financial difficulty then you should consider informing your mortgage lender as soon as possible.
Your mortgage lender may be able to offer you a mortgage payment holiday or reduced monthly mortgage repayments for a fixed time while you try and get your finances back to track
If you continue to miss monthly mortgage repayments without any written agreement from your mortgage lender then your mortgage lender can issue a default notice and begin home repossession proceedings.
This is the last thing the mortgage lender will want to do as it is very costly.
What should you do if you missed a mortgage payment?
If you find yourself not able to make your monthly mortgage repayments and you have already missed a mortgage payment then the Government might be able to help you through its mortgage schemes.
Some of these mortgage schemes include the mortgage rescue scheme, the support for mortgage interest and other government schemes that can build up your income so you can avoid missing more mortgage payments.
Steps you should take if you have missed a mortgage payment:
Get free debt advice🆘
If you have missed a mortgage payment then get free independent advice before contacting your mortgage lender.
This may arm you with the right information and put you in a different state of mind to deal with your mortgage lender. When seeking free debt advice you should consider
You should also check with turn 2 us charity to see if there may be any benefits or grants to increase your income so you can avoid missing more mortgage payments.
The easiest way to stay out of debt is to use budgeting tools and ensure you continuously switch your utility & credit bills to cheaper ones when possible.
Tell your mortgage lender😁
If you have missed a mortgage payment then you may naturally want to avoid speaking to your mortgage lender but this may be the best thing to do.
Mortgage lenders want to see you make your mortgage repayments rather than missing mortgage payments.
After all, it is in their best interest to see you keep up with your monthly mortgage repayments.
Once you tell your lender that you are having financial difficulty your mortgage lender will be able to suggest suitable options with you in order to help you get back to making your mortgage repayments and avoid having any missed mortgage payment which could damage your credit file..
Some of those options include;
- A mortgage repayment holiday
- Reduced monthly mortgage repayments
- Increasing your mortgage term
- Moving to interest-only mortgages on a temporary basis
- Switch to a part and part mortgage
A mortgage repayment holiday
If you have missed a mortgage payment then your mortgage lender could offer you a mortgage repayment holiday.
A mortgage repayment holiday is a fixed period in which you won’t have to make any monthly mortgage repayments.
This will allow you to get your finances in order and avoid having any missed mortgage payments in the future.
The issue with mortgage repayment holidays is that they end up increasing the total interest charged on your mortgage account.
This is because the amortization schedule of your mortgage account ends up with more debt being allocated to periods when a lower debt amount was forecasted and hence interest is being charged on more debt than was first predicted in your key facts illustration document.
Some mortgage lenders may also require you to make increased monthly mortgage repayments once the mortgage repayment holiday is over in order to bring your mortgage account up to date.
Reduced monthly mortgage repayments
If you have missed a mortgage payment and it is very likely you will be in financial difficulty for a much longer time then the mortgage lender may offer to reduce your monthly mortgage repayment for a fixed period.
This will allow you to continue to make reduced monthly mortgage repayments whilst you sort out your finances.
The issue with this is that it may leave a negative mark on your credit file and as with mortgage repayment holidays, it will leave you paying more in interest charges over the lifetime of the mortgage.
One way you can potentially reduce the effect of this is to overpay your mortgage once you are able to.
By doing this you will reduce the amount of debt you are being charged interest on.
Some mortgage lenders will even offer for you to pay only the interest element of your mortgage until you get back on your feet.
Increasing your mortgage term
If you find that you have missed a mortgage payment and you expect to miss more mortgage payments in the future then your mortgage lender could suggest you increase your mortgage term.
You may also bring this suggestion to your mortgage lender.
Increasing your mortgage term will essentially reduce the monthly mortgage repayment as you are now paying back your mortgage balance over a much longer term.
The issue with this is that you will incur more interest charges as you are carrying the debt for a much longer-term than initially thought.
You are not guaranteed an increase in your mortgage term as the mortgage lender will need to put you through their mortgage affordability tests to ensure you can afford the mortgage for the increased term.
If the mortgage lender does not agree to increase your mortgage term then you can look to remortgage to a mortgage lender who will.
Moving to an interest-only mortgage
If you are constantly missing mortgage payments then you may also want to consider simply switching to an interest-only mortgage.
By switching to an interest-only mortgage you will reduce your monthly mortgage repayments as interest-only mortgages only have the interest portion as their monthly mortgage repayment.
You will then have to repay the capital using a capital repayment vehicle. The mortgage lender must approve of your capital repayment vehicle before you get this mortgage.
This could be investments, the sale of the property, remortgaging to a capital repayment mortgage or even using equity release.
You can switch to an interest-only mortgage for a few years and then remortgage back to a capital repayment mortgage.
Switch to a part and part mortgage
Another option if you have missed mortgage payments is to switch to a part and part mortgage.
A part and part mortgage is a mortgage which is part interest-only and part capital repayment.
A part and part mortgage may be a good option if you don’t have a suitable capital repayment vehicle for a full interest-only mortgage but need to reduce your monthly mortgage repayments to an affordable limit.
Your mortgage lender might also introduce you to government mortgage schemes such as the mortgage rescue scheme and the support for mortgage interest.
Government help if you missed a mortgage payment
There are a few schemes which the government has which may help you if you have missed a mortgage payment.
It is worth checking with your local council or the citizen’s advice bureau as new schemes may have come out since the time of writing.
The Government schemes which could help you if you have missed a mortgage payment include:
The Mortgage rescue scheme🚩
The mortgage rescue scheme is no longer available in England but still exists in Wales and Scotland.
The mortgage rescue scheme is targeted at those people who are current homeowners but are at risk of going homeless due to not being able to continue making their monthly mortgage repayments.
The mortgage rescue scheme is operated by local councils and to get involved you will need to take your case to your local council and inform them of your situation.
Your local council will then put you in touch with a housing association who will look into your case and then decide if they can help you.
If they can help you they will offer to either:
- Buy you complete home and rent it back to you
- Buy part of your home and become a co-owner with you
You can read more about the scheme here.
Home owners support fund🏠
In Scotland, the government operates a similar scheme through its homeowner’s support fund.
The schemes are only available to people who are struggling to repay their mortgage and who have missed a mortgage payment.
The homeowners support fund helps homeowners in two ways:
- The Government buys a stake in your home up to 30%. This means you have a lower mortgage as the government is essentially paying most off your mortgage off. You continue to live in the home and make lower mortgage repayments. This scheme is known as the mortgage to shared equity scheme.
- The second option is the mortgage to rent scheme where the government buys your home and rents it back to you.
The support for Mortgage interest scheme🌀
The support for mortgage interest scheme will help you with the interest payments on your monthly mortgage repayments.
The support for mortgage interest scheme has since changed from a benefit to a repayable loan.
The support for mortgage interest scheme is a bit different in Ireland and you can find out more about this here.
If you get universal credit you may also be eligible for government help through the support for mortgage interest scheme if you have missed a mortgage payment.
You will only be able to get government mortgage help if you have no ‘earned income’, such as income from a part-time or full-time work, and you don’t get any benefits from an employer such as Statutory Sick Pay or Statutory Maternity Pay.
If you’re eligible for this type of help then the government will make any payments directly to your mortgage lender and these payments will be based on the interest you have on your outstanding mortgage.
If you qualify for Support for Mortgage Interest (SMI), you’ll get help paying the interest on up to £200,000 of your loan or mortgage. This figure is £100,000 if:
- you’re getting Pension Credit
- you started claiming another qualifying benefit before January 2009
You will need to wait 3 months before the payments will state and the payments will cease immediately after you begin to work again.
Get mortgage protection insurance
If you are worried you may miss a mortgage payment in the future then you may want to consider getting adequate mortgage insurance.
You could get mortgage insurance if you are worried about losing your job or if you are worried about falling ill.
You won’t be able to get adequate mortgage insurance if you are already ill or if you are already in the process of losing your job.
There are several different types of mortgage insurance and the type of mortgage insurance you go for will be dependant on your personal circumstances.
Your mortgage broker or an insurance broker could help you decide on this.
There are two main types of mortgage insurance, they are:
Mortgage payment protection insurance (MPPI)
Mortgage payment protection insurance (MPPI) will pay out if you can’t work due to accident, sickness and unemployment via redundancy.
You can get this from your mortgage lender or a specialist insurer. More often itis cheaper when not bought from a mortgage lender.
Accident, sickness and unemployment insurance
Accident, sickness and unemployment insurance will pay out a pre-agreed amount that is based on your earnings for up to two years if you have an accident or get sick and are unable to work.
Income protection insurance
Income protection insurance will pay out a pre-agreed amount based on your income in the event of accident or sickness until you are able to return to work or retire.
FAQs: Missed a mortgage payment
What happens if you miss one payment on your mortgage?
If you miss one mortgage payment this will usually get registered on your credit file. The mortgage lender may charge you a late fee if you still have not brought your account up to date after the grace period.
Do mortgage companies allow you to skip a payment?
Some mortgage lenders may allow you to skip a payment if you request this due to financial difficulty.
You may then have to overpay on your next few mortgage repayments to bring your account up to date.
Can you put your mortgage on hold?
Yes, you may be able to put your mortgage on hold if the mortgage lender agrees.
This is known as going on a mortgage payment holiday.
In this brief guide, we discussed what happens if you missed a mortgage payment.
If you have any comments or questions please let us know.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.