Effects of defaulting on mortgage?

frogmorton

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Hi,
We're in a tricky situation. Recently my wife resigned her job due to stress, planning to become a consultant go solo. However over xmas she had a nervous breakdown and was hospitalised. She is now home but jobless and still very ill and unable to work. It is likely to be several months at least before she recovers enough to work again.

We have spoken to the mortgage company and requested shifting to interest-only mortgage, which would be slightly more than half what we pay at the moment. However they have advised that, from our financial breakdon, we cannot even afford interest only. They have offered to allow us to pay only a 5th of our total mortgage (a 3rd of interest-only) for a few months. But the downside is that this will show as mortgage defaults on our credit rating.

Obviously beggars can't be choosers, but we could probably afford to pay the extra and achieve interest-only with the help of relatives. However it would completely clear out our meagre saving and it is difficult to accept that sort of charity from family.

Can anyone advise, what would be the impact of defaulting on the mortgage for a few months? We have a few credit card debts adding up to about 10K. I fear a spiral of debt - all creditors demanding payback at a faster rate once they notice we have defaulted on the mortgage. I'm in a bit of a quandrary, looking for advice.

Thanks

Tixy

Hi

Missing mortgage payments will likely have a big impact on your ability to get future credit agreements.

It sounds like you are planning to pay reduced mortgage payments but keep up to date with payments to your unsecured debts?
That is not what a debt advisor would advise you to do. Your priority debts/costs should be paid first and credit card debts are not priority.

Have you looked in to /considered trying to arrange repayment plans with your credit card creditors instead?
As you don't know how long your current financial situation may continue this would seem to be a more suitable option (as obviously the mortgage company won't accept reduced payments for a long period - if she isn't able to return to work or find new employment in a few months times).

frogmorton

Thanks for your reply!

Renegotiating a reduction with the credit card companies has been suggested. I wondered though whether that would result in the same bad credit rating - or would credit reports distinguish by degree between a negotiated reduction of credit card payments and a mortgage default?

I was planning to take advantage of one of the many "no interest for 16 months" type card offers, but if we have a mortgage default I guess that would be impossible.

Tixy

Either option would have a significant impact on your chance of getting any new credit accounts for some time.

Is the mortgage in joint names I guess?

Might be worth speaking to one of the debt advice charities - IMPORTANT - Where to seek professional impartial advice about your debts.

The only way to not affect your credit files is if you can manage to keep up with repayments on them all, or find a way to be able to pay at least the interest only option on the mortgage- is that definitely not possible? not even if you tried something like applying for a 0% card? Have you been through your income/expenditure in detail? looked to see what you can reduce? anything you could sell to help you through the next few months?
Do any debts in your wife's name have any insurance on them that she could make a claim on due to ill health? Have you looked to see what if any benefits she might be entitled to whilst she is unemployed?

You could also try posting on the debt free wannabe section of the forum for some advice - especially if you post up a statement of affairs the posters on there will likely be able to make suggestions as to what options you may have in terms of debt repayments and also to see if there is anyway to make changes so you can keep up with repayments.