Some mortgages do go bad, and some do. It's not unusual for people to take out mortgages that they can't pay back or that are right on the edge of what they can afford. So, what happens when mortgages fail? and what should we do about it?
There are many ways that a mortgage can become your worst nightmare, such as
- Unexpected events can put you in a bad mood that makes it hard to do anything. If you've been hurt in an accident, got sick, or lost your job and don't have payment protection insurance or any other form of repayment protection, you may have to take the brunt of the burden. Unforeseen circumstances can include being hurt in an accident, getting sick, or losing your job.
- Having a mortgage puts a lot of stress on your spending. If more than 85% of your expenses go toward your mortgage, you have a stretched income. If you got your mortgage at a good rate, you may have reached the end of your deal. This means that if the mortgage interest rate goes up, you will have to pay back a larger amount. When getting a mortgage, you should always think about how your life might change and how much money you have left over each month for other important things.
- A rise in interest rates makes you lose money. If rising interest rates made it hard for you to make your mortgage payments, it may be time to remortgage or think about other options. When you first apply for a mortgage, it's not a good idea to spend all of your income. After two to three years, your rates could go up, your deal could end, and the Bank of England's interest rate could go up.
So that gift-wrapped mortgage at 5% may have changed a lot since you first got it. As many people still do, you should always be realistic about what you can afford on a mortgage. That extra chunk of interest on your mortgage could be the difference between being a good, reliable payer and falling behind on your payments and getting bad credit.
Mortgages aren't always what they seem to be, so it's important to read the fine print before applying for any kind of mortgage. There may be hidden interest charges and penalties to make up for a lower interest rate. For example, that 5.29 percent rate you saw in a store window may come with charges of more than GBP2,000 to GBP5,000 to make up for a slightly higher rate so that it looks more attractive.
Good mortgages can turn bad, but if you plan ahead and save for bad times, your mortgage will stay in good standing and not go into arrears.
