- May 13, 2021
How to Manage Mortgage When Unemployed?
The COVID-19 pandemic has drastically increased global unemployment. Many UK citizens have lost their jobs. However, lenders require regular repayments for loans and mortgages. Therefore, the expenses continuously pile up.
Moreover, money experts with emergency funds for almost six to twelve months have started reducing them. But, eventually, they have to take out cash from the savings account. Therefore, the problems keep increasing until the pandemic is resolved.
Under such circumstances, money borrowers have a few options to avail relief on repayments. These include availing government and insurance benefits, contacting the lender, increasing sources of revenue, etc.
5 Ways to Cover Mortgage After Unemployment
● Contact the Lender
The first step to managing a mortgage is contacting the lender and informing about the current income situation. During the conversation, discuss the total arrears, focus on regular repayments in the past, mention minor or negligible defaults, etc.
Also, uncover the exact mortgage amount, ask for a reasonable time to recover shortfalls, and mention charges incurred on defaults. After the discussion with the lender, you might arrive at one of the three possible outcomes.
These include increasing the tenure of the mortgage, switching to interest payments only, or making temporary arrangements for payments. The discussions also mention the affordable amount. It is better than making negligible payments as it helps in the reduction of arrears.
● Insurance Covers
Accident, Sickness, and Unemployment insurance is also referred to as Mortgage Payment Protection Insurance (MPPI). It can help recover mortgage payments under three circumstances: accident, sickness, or redundancy.
The details of the insurance policy are often in the paperwork initiated between the borrower and service provider. However, if you can’t find the necessary papers, contact the broker or lender that offered the insurance while taking out the mortgage.
Unfortunately, payments through MPPI don’t occur if you are struggling at work. At this point, make sure to compare the existing insurance with competitors and avail better deals before proceeding with the benefits.
Also, don’t forget to measure the advantages of MPPI against other unemployment, sickness, and accident policies. These provide a pre-agreed monthly income for almost two years based on monthly incomes and not the mortgage.
Alternatively, you can choose comprehensive income protection insurance against accidents or sickness. These provide a pre-determined amount based on the income until you retire or resume work. Make sure to check these covers in your paperwork and with family members.
● Universal Credit
You can recover interest payments on a mortgage with Universal Credit. However, it comes with a few clauses. Primarily, qualifying for it requires no part or full-time income, i.e., earned income. You would also become ineligible with ongoing benefits such as Statutory Maternity Pay or Statutory Sick Pay.
Also, the money for eligible candidates is based on the interest rate applied on an outstanding mortgage and paid directly to the lender. The maximum amount dispatched through Universal Credit is £200,000.
Moreover, the lender receives the payment after a three-month waiting period. However, if you become employed during this tenure, the Universal Credit is not granted. Alternatively, you can choose guaranteed loans for unemployed after starting a part-time job or receiving benefits.
An important fact to remember is that payments for Universal Credit diminish as income increases. Primarily, the monthly payment incorporates housing costs, childcare, child costs, support for the disabled, costs for carers, and more.
You can even receive an additional amount for people suffering from a health condition or disability and cannot work. However, often people who have a disability receive higher compensation. The basic amount received by you or homemakers is referred to as Standard Allowance.
● Give Up Endowment Policy
An endowment mortgage incorporates an insurance policy and investment. It allows repaying the interest accrued on the lump sum borrowed. Therefore, it helps to avoid making payments for a large amount. The endowment policy is an additional savings product of this mortgage.
If you have an endowment mortgage and are currently unemployed, selling or giving up your policy would provide a cash influx. The money can help to repay existing debt and manage the mortgage loan.
Simultaneously, you would require an alternative live cover and other methods of repaying the remaining mortgage. Additionally, endowment policy service providers might even levy costs or penalties for ending it.
Therefore, it would prove much more beneficial to ask a financial consultant or lawyer before selling the endowment policy. However, the Association of Policy Market Makers (APMM) would provide the right advice for the next steps if you have made up mind.
You even have to inform the lender, bank, or financial about the methods of repaying the remaining debt through an email or letter. However, do clarify the details and explain the circumstances to the lender before selling the policy.
● Credit Cards and Loans
It is surprising to learn that credit card service providers willing to offer their cards to an unemployed person with a recurring monthly income. Moreover, they provide cards even if a person doesn’t have a business or full-time employment.
The service providers offer unemployed credit cards to freelancers, people working part-time jobs, or rental income. Alternatively, if you don’t qualify for an unemployed credit card, the option for secured credit cards remains open.
Unfortunately, secured credit cards would require collateral. Moreover, the card would rely on the deposited collateral. Many people offer a fixed deposit as collateral to avail of a secure credit card.
Moreover, you can switch to a standard credit card and close this account anytime you, please.
Similarly, secured loans for the unemployed would require collateral such as a property or vehicle. The lender risk is mitigated through this form of a loan.
It means the lender can liquidate the assets to receive the debt amount if you fail to make repayments. Moreover, the loan amount would depend on the collateral valuation. Additionally, the lender would also check the borrower’s affordability before giving the amount.
Unfortunately, the amount provided against collateral is small compared to expectations. Besides these options, you can avail of guaranteed unemployment loans.
A significant advantage of taking credit cards and loans for unemployment is that the interest rate is lower because they mitigate lender risks. Therefore, unemployed loans and credit cards offer a cheaper bargain than other options and offer ease of availability.
Alternative Solutions for Paying Mortgage When Unemployed
Besides generating sources of income to repay the mortgage, you can even focus on benefits to save money on tax. For example, you can make claims for tax credits if you receive Working Tax Credit or Child Tax Credit.
Additionally, loss of job or unemployment opens the door to new Universal Credit claims. Therefore, before applying for the tax credit, take a financial consultation. The new-style Jobseeker’s Allowance (JSA) is available to people that have made Class 1 National Insurance Contributions (NICs) for the past two years.
The compensation is received by the building society, credit union account, or bank for almost six months. So, you might lower your expenses. Moreover, the new-style JSA is not affected by the spouse’s income. Therefore, you might reduce your financial debt in no time.
With the same condition as the new-style JSA, employees that recently became redundant can claim statutory redundancy pay. Additionally, you should check for contractual redundancy pay in the employment contract.
If you are more than 55 years old, you have the option of taking a personal pension. However, it would only become possible with a defined contribution pension. In definition, it means pension pots that have summed with regular payments.
However, before taking a portion or full amount of personal pension for recovering from mortgage debt, it is essential to ascertain risks. These factors would include probable tax, recovering regular household expenses until death, care costs, and the effect on ongoing benefits.
Additionally, work on budgeting and managing current household expenses. For example, you can save money on utilities and broadband by switching service providers, avoiding late payments, removing unutilized services, etc.
Similarly, you can save on gas and electricity bills by using energy-efficient methods, seeking grants, opting for fixed priced tariffs, and scheduling payments. These practices of the budget would help to diminish expenses and manage mortgage repayments.
Besides these options, you can choose online instalment loans to recover from existing mortgages and other debt payments. After these steps, visit the Citizens Advice Bureau (CAB) to take debt advice.