Many homeowners who have home loans struggle to repay their mortgages. As inflation rises and economic conditions worsen, keeping a home loan could be a real challenge. This is why many consumers end up incurring home loan arrears. It could be a source of more problems.
Are you worried because your current income is not sufficient to cover all your costs? Have you lost your income source? You could still avoid getting into arrears if you would be more strategic in handling and maintaining your mortgages.
Here are four strategies or options you could consider taking if you aim to prevent home loan arrears.
1. Switch to a better mortgage
That is if you think your current home loan has a higher interest rate compared to some others. It is just logical for a mortgage borrower to switch to a home loan with lower rates and costs. Getting the best deal always would help you avoid possible repayment arrear. If your current home equity is more than 20%, you could possibly obtain more competitive interest rates. If you have less, you could always opt to improve on your present deal.
2. Opt to pay ‘interest-only’
If you are worried about incurring an arrear, you should switch to a repayment scheme that would make you pay only the interest. Doing so would certainly cut your amortization dramatically. However, this strategy should be for a temporary and short-term basis only or until you get a little well off, financially. If you opt to pay interest-only, you would not pay off your loan, which would remain as long as you do not repay it. Remember, the longer your loan stays, the greater its cost gets.
3. Refinance your home loan
It could be viable to get a second mortgage to repay a first mortgage and eventually obtain a refinance to repay the second mortgage. Doing so is just like renewing your home loan. It could be a strategy to prevent getting into a default, which you should aim to avoid like a plague.
4. Extend your term
This strategy could be a modest relief on monthly amortizations while you retain the traditional security of a repayment mortgage. You may ask your lender to adjust or extend your loan so you could obtain a lower rate and smaller monthly repayment requirement. However, not all loan providers could agree to do so. If you opt to take this option, you may start asking your lender whether it would allow you to take an extension. If you further extend your home loan, be prepared to make it costlier in the long term.
Which of these could be applicable to your current condition? As you struggle to make both ends meet, you should consider all these and more options that could help you avoid arrears and possibly defaults’ in the future.