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How mortgage arrears are handled?

The mortgage is a critical financial incentive for buying properties. However, it becomes a problem when the buyer cannot pay back. The mortgage is a loan and like all loans must be repaid. The buyer usually repays the mortgage in installments after buying a property. Each payment reduces the amount of the mortgage by a predetermined proportion. The security for the mortgage is the property that it is used to buy. A lender may resale the property if the borrower defaults in making payments. Once a buyer fully repays the mortgage and interest on the mortgage, he becomes a full owner of property.

Mortgages are usually repaid within a given timeframe. The time it takes to repay mostly depends on the size of the mortgage. Larger mortgages are generally repaid over longer periods of time. A borrower may find himself lagging behind in payment at any time during mortgage the repayment period.

Mortgage arrears are as distasteful to the lender as it is to the borrower. Contrary to many opinions, it is never a lender’s desire to repossess buyer’s property. The process of repossession of properties can be complicated and costly. Lenders usually prefer giving their clients time and incentive to repay rather than take ownership of a property at the very first chance of opportunity. This attribute of lenders could be because of their inherent humanity or obedience to the rules of Financial Conduct Authority (FCA). FCA requires all mortgage lenders to keep their clients informed about the condition of their contract before, during and after the mortgage is loaned out. The lender must explain clearly the actions they will take if the borrower defaults in his loan repayment.

Lenders are never quick to repossess a property with mortgage arrears. They usually give borrowers opportunity to catch up with payment. The first thing that most lenders do is to contact the borrower. This is in keeping with the rules and regulations of the Financial Conduct Authority. The lender may then give the borrower more time to repay a loan, or offer him a repayment plan that is suitable to his current financial situation.

Lender’s course of action is usually guided by the borrower’s conduct during the loan repayment period. A borrower who has been diligently repaying his dues can enjoy more lenient measures such as adjustment of repayment plans. Lenders tend to be stricter to borrowers whose repayment has been odd from the day they were given a loan. These lenders can be taken to court and served repossession orders. Nevertheless, there is always a possibility of the repossession order getting suspended. This just shows how much the financial market is lenient to house buyers.

It is important for home buyers to plan how to avoid the inconveniences of mortgage arrears before applying for the mortgage. The borrower should only apply for something that he can repay. He should ask for an extension of the repayment period if he has to apply for bigger loans. Loans spread over a longer period usually, have smaller instalments.

Posted by on 17/01/2017 in Mortgages

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