Mortgage arrears When DMP is right choice
Summary: Mortgage arrears - This paper argues that clearing mortgage arrears is usually a higher priority than meeting all unsecured debt repayments and that a Debt Management Plan (DMP) may make good sense in such circumstances.
Priority and non-priority debts
It is important to distinguish between the outgoings that need to be paid first from the others. There is general agreement that mortgage/rent payments, council tax, utility bills, travel costs to get to work alongside basic food costs are essential. After these are met we can turn our attention to unsecured debt repayments, phones, social etc.
Mortgage arrears
Once we fall behind with mortgage payments it may be difficult to catch up. It is vital to discuss with our mortgage company at the earliest time, the options open to us. Prolonged problems with mortgage payments can of course lead to repossession of our property. This is likely to lead to the property being sold at less than its true value and for us to lose equity that we might have built up or be faced with a large debt due to the shortfall between the sale price and the mortgage owed.
How can a DMP help?
A mortgage is a secured debt and can't be included in a DMP. Some repayment plan or extension of the mortgage will have to be agreed with the mortgage company. In order to make a higher mortgage payment or in order to prevent the arrears from happening again, it may be that we have to consider cutting costs elsewhere. If we can make savings on household costs or daily living so much the better. However for some people the only way to make savings in order to address a mortgage problem is to look to reduce debt repayments and one of the most effective ways to do this is through a DMP.
How does a DMP work?
Creditors will expect to see a breakdown of household income and household expenditure. The increased cost of the mortgage plus other bills and housekeeping etc form the outgoings list and is deducted from the income figure. This gives an idea of available income for debt repayments. The idea is to eliminate the need for further credit (which can simply increase the overall problem) by only paying an affordable payment to cover all unsecured debts through the DMP. This gives us an opportunity to get our mortgage payments on track and still live properly without obtaining further credit.