Most people would never have any intention of falling behind on their mortgage payments, but sometimes this can occur due to circumstances beyond their control. Working as a mortgage adviser, you will learn the arrears process that your employer implements, but it is best to get a grasp of the basics and what it means to the borrower.
All lenders have processes that become enforceable when arrears occur, although each may differ slightly from another. Ultimately, they are legally allowed to reclaim the property, before putting it up for sale in order to obtain the monies to repay the debt.
What is classified as mortgage arrears?
Whilst each lender will have a slightly different definition of what they class as mortgage arrears, any late, missed or partial payments will mean that the required reimbursement schedule has not been met, meaning that the property could be at risk of repossession.
Some lenders state that they may repossess if three payments are missed on a consecutive basis, whereas others claim that borrowers are considered in arrears if they are late with more than six payments during the calendar year. As such, it is vital as a mortgage adviser that you make sure that your customers are aware of the implications of not maintaining their mortgage payments.
The implications of mortgage arrears
The ultimate result of not keeping up with payments is the repossession of the property, but as soon as one is late or missed, it can begin impacting on the borrower as it could affect their credit rating.
This may mean that they struggle in the future, if they go on to seek another mortgage. If the arrears continue to accrue, it creates a snowball effect, with the debt continuing to grow due to additional charges and interest. This makes it harder for the borrower to get back on their feet.
Preventative steps to take
Make sure that customers are aware of the importance of speaking with their lender as soon as they feel that they may begin to have difficulty making their monthly mortgage payments. This may help to prevent it from impacting on their credit rating, allowing them to get back on track sooner.
Depending on the reason for the payment difficulty, such as redundancy, an accident or sickness, there are insurance policies available to cover unforeseen events, which you would run through with your customer during the initial application process.