If you are pondering the question “what happens if I stop paying my mortgage?” you could find yourself in difficulties if you do so. If you’re in financial strife, don’t stop paying your mortgage if you can help it, as there are alternative solutions.
If you stop paying your mortgage payments you may have your home repossessed. It will also make obtaining future credit very difficult in the short term. This not only includes getting home loans, but it will become extremely challenging to obtain any form of credit. Missing one or even a couple of mortgage payments doesn’t mean repossession is imminent. But by missing payments will set the repossession process in. Plus to boot, it will have long-lasting consequences for your credit and finances.
What happens if I stop paying my mortgage?
It’s only at the point when you’re struggling to pay your mortgage that you realise it’s not the bricks and mortar but the mortgage that keeps the roof over your head.
There are a number of reasons why you may be needing to stop paying your mortgage. This could include the loss of a job, health reasons or perhaps your business has gone bust!
If you are wondering what happens if you stop paying your mortgage, there are two major impacts to be aware of.
- The risk of your home being repossessed.
- Makes it difficult to obtain future credit in the short term.
Let’s take a look at these in more detail.
1. The risk of your home being repossessed
If you’ve already missed a mortgage payment, then you are currently ‘in arrears‘ on your mortgage. It is at this point that the mortgage repossession process begins with your mortgage lender.
However, if you’ve not yet missed a mortgage payment, try wherever possible to pay this if you can. Before you miss a payment, speak to your lender straight away, as they may be able to help you.
However, if you have already missed a mortgage payment (or two), and if you’ve not already spoken to your mortgage lender, do it right away. That means not delaying and doing it NOW!
There are many options to avoid being repossessed, which can be found in the follow article:
Will the government help with your mortgage payments?
The government won’t help you with your mortgage payments if you’re having difficulty paying them. But, you may be able to get Support for Mortgage Interest (SMI).
This will pay your mortgage interest for you, but you’ll have to find the rest of the mortgage payment yourself. If you’re not able to do this, you may need to speak with your mortgage lender to see if you can switch to an interest-only mortgage temporarily.
If you’re eligible for the SMI scheme, the Government steps in and makes interest payments. This is on the first £200,000 of your outstanding mortgage for the period you can’t afford them. However, this is reduced to £100,000 if you’re getting Pension Credit.
The current interest rate for SMI is 2.61%. But this is subject to change each time the Bank of England average mortgage rate moves by at least 0.5% away from the current SMI rate. So the rate you pay will be affected either up or down if bank rates change.
There are rules around who can claim SMI, so you need to check your eligibility.
2. Makes it difficult to obtain future credit in the short term
No matter how many mortgage payments are missed, your credit report will be badly affected. But if you end up being repossessed, this will stay on your credit report for seven years.
More Reading: If my house is repossessed can I get another mortgage
This will make obtaining future credit very difficult in the short term. Which doesn’t only include getting a home loan, but it will also become extremely challenging to obtain any form of credit. This includes credit cards and personal bank loans.
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