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The Mortgage situation
The salvo of interest rate rises over the 13 months to August 07 means that there's a lot of mortgage borrowers living under a threat of going into arrears. Higher rates have added about £135 to the monthly cost of a typical £180,000 mortgage, leaving many homeholders seriously short of money.

The Council of Mortgage Lenders says, in the first half of the year, 14,000 owners who had long-term arrears had their homes repossessed by their Mortgage providers. This is the highest number since 1999 and nearly a 30% rise in just I year. Borrowers who are starting to struggle are urged not to think it's just going to go away and to speak to their lender or a broker to see what options are available to them.

"Overall, the vast majority of mortgage borrowers will cope, even in the current market where affordability is really stretched," says Michael Coogan, CML director general.

"But anyone who thinks they may face difficulties needs to talk to their lender early to see what's possible - Lenders always see possession as the last resort, but allowing arrears to mount up more makes repayment difficulties more difficult to deal with, and is not a sustainable strategy for anyyone."
So what are the best ways of keeping up with mortgage repayments?

Shop around for a better mortgage deal.

Experts urge those looking for good mortgage deals to do their homework and move quickly. If you delay as your existing fixed or discounted rate deal reaches the end of its term, you definitely risk being moved on to your lender's standard variable rate (which would probably seriously damage you monthly finances).

You should ensure another mortgage deal is in place ready so that you can, virtually make one phone call and trigger it on the day your current fixed rate mortgage expires. You should also plan ahead by putting extra money into savings so you can pay a lump off your mortgage and also get used to paying higher costs.

If it's a struggle coping with your monthly finances then always make your mortgage your first priority and get on to a lower rate fast. Getting a bad payment record will severely limit your options. The best mortgage deals tend to be reserved for people with nice clean repayment histories. Borrowers who have missed even one monthly payment could end up rejected and then forced to accept higher-rate alternative mortgages.

Go interest only mortagage
Opting for interest only is quite popular amongst borrowers who really need to reduce the pressure on their monthly finances. Most lenders will change payment schedules on to interest only terms at any time and there shouldn't be any fees charged for the new calculations.

Using an interest only mortgage will keep your monthly payments down until you can then afford the higher monthly payments of a repayment mortgage. You could also take the interest only route purely because you don't want to put yourself under financial pressure every month.

What's more, if you carry on saving, at the end of the year, if you haven't had to use the money put aside for, say the central heating boiler blowing up, why not can make a lump sum payment of your mortgage. Most mortgage lenders, including the major players such as Abbey, Halifax and Woolwich will allow you to repay up to 10% of the capital every year.

But there are always long term repercussions with an interest only mortgage. An interest-only mortgage may seem like a cheaper bet - it isn't. If you never pay off the loan it's going to cost you more over the full life of the mortgage because, ofcourse, you continue to pay interest on the whole amount borrowed throughout the term.

A recent report by the F.S.A. (Financial Services Authority) stated that whilst most consumers taking out interest-only mortgages have a reasonable understanding of the implications, around 10% of them have either no idea or at best only a rough idea of how they intend to eventually repay the mortgage.

"There is absolutely nothing wrong with interest only mortgages but consumers must be very clear about how they eventually will repay the loans," says Clive Briault, the M.D. of retail markets. "Consumers' mortgage repayment plans need to be very realistic and robust. Consumers can't simply assume that house prices will continue riring at the rates we have seen recently"
Extend the term of your mortgage
Extending the term of your mortgage will effectively reduce your monthly payments while keeping the security of a traditional repayment mortgage. Eg, If you asked your provider to add, say 5 years, to your existing mortgage term on a £180,000 borrow and your payments should fall by about £85 a month. Ask for another five years and your monthly payments would decrease a further £55.

Most mortgage providers are extremely flexible and will let loans last up to and sometimes even beyond retirement age. There could be a small fee for the new calculations. You have to be aware however that the total amount you will pay back will be much higher taking into consideration the extra years of interest.

And now for the Good News...
Interest rates seem to have stabilised and economists have predicted that the Bank of England could soon be following the US Federal Reserve's example and cutting interest rates. Now is the perfect time asses your situation and rearrange your mortgage.

Why not consider saving the extra money when the interest rates on your mortgage drop in a high interest savings account. This money would be your hedge against any future interest rates rises and if eventually paid off your mortgage you could save a fortune in interest. Click here to get a free no obligation quote on a mortgage for consolidation purposes, new purchase, moving house or remortgage.

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