Ask the Expert: What are the consequences of not keeping up with payments for my second mortgage?
Our blog series helping the public with their frequently asked financial questions continues, this week taking a look at the issue of what to do if you realise that you can’t make your regular monthly second mortgage payments.
Q: What are the consequences of not keeping up with payments of my second mortgage (and what can I do)?
A: The vast majority of people who take out a second mortgage have no complications when paying it back. However, if you realise that you cannot keep up with payments on a second mortgage or any other debts it can be a difficult time. You will no doubt feel under stress.
If this does happen it is important that you do not put your head in the sand and let your position get out of control: you have to be decisive and try to work with the lenders to proactively manage the situation.
We have discussed before what to do when you feel your debt has become unmanageable – including making sure you pay off ‘priority debts’ – that is, ones that could lead to you losing your house or ending up bankrupt – first.
One such priority debt is a second mortgage.
As second mortgages are secured against your house, failure to keep up with payments could result in repossession. Your second mortgage lender does not have to get permission from the lender that gave you your first or main mortgage before taking steps to repossess your home.
If you miss a payment(s), your second mortgage lender will contact you. If over a period of months your payments are not made the lender will send you a default notice.
This notice will include details of the missed payments, and a date that you must repay the outstanding debt by – this date will be at least a fortnight after the date of the notice.
If you do not repay by this date, the lender can then take court action. If the lender decides to take action, the court will decide if a repossession order for your home should be made.
However to minimise the chances of any of this happening if you find yourself unable or struggling to make a payment: contact your lender as soon as you can and seek a resolution.
You may be able to negotiate a deal with the lender in order to vary the terms of the loan: this might seem scary but it’s important to remember that lenders are people too – and will only repossess in a last case scenario!
You could be moved to a different rate, or allowed to pay less over a longer period of time so that can work within your finances.
It is important when you speak to your lender that you let them know you are taking the issue seriously and are getting help for the problem. This can include speaking to debt services and creating a budget for yourself.
Overall, your lender will try to help you – but they can’t do that if you don’t tell them that you are having issues.
The longer you do nothing, the worse the consequences will be.