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Can’t pay your mortgage? Should you just hand your keys back?

Managing to meet your mortgage repayment commitments can be the last straw for many people in today’s financial environment. People are losing jobs left, right and centre and, even if they are still employed, may find that money is tight. Companies are less likely to pay overtime, bonuses and high pay rises at the moment.

Your mortgage payment is likely to be the largest single financial commitment that you have. If you make your payments on time every month then you’ll be taking steps towards ultimately owning your own property once you’ve repaid your mortgage in full. Problem is, if you’ve lost your job or can no longer manage your debts as a whole, the chances are you can’t actually pay your mortgage and will soon fall into arrears.

Knowing that this puts your home at risk of repossession is not really important here – if you don’t have the money, then you simply don’t have the money. Just a year or so ago you could have sold your home, paid off your mortgage and may even have got a tidy equity sum to start again but even that option isn’t open to us so much now. Houses are not selling and their values have plummeted so you may even be in a negative equity situation.

Faced with this kind of situation a lot of people are opting to simply walk away from their mortgages and to hand their keys back to their lenders. This is often referred to as voluntary repossession and can be done simply because you feel you have no other option or as part of a specific debt management process such as bankruptcy. Here, your lender can technically take your home, sell it and use the money to pay off what you owe.

  • Sound like an OK solution to a stressful problem to you? Think again. Contrary to popular opinion this is not a way to walk away from your debts and your lender can still chase you for money if the sale of your home doesn’t pay off all of your mortgage and its associated costs. The money you owe here will be unsecured rather than secured but they will still want it back.

    Another problem you could come across here is where you will live after you give back your keys. If you have nowhere to live and throw yourself at the mercy of your local housing department then they may classify you as ‘voluntarily homeless’ which means they do not have to help you find somewhere to live. This could be a real issue if you have a family to look after.
In some cases going through a voluntary repossession process (i.e. in bankruptcy) may work. In many it won’t. You’d do far better to take debt counselling advice to see what your options are here and to find an alternative solution. Remember, you can always talk to your lender as well (in fact you’ll be advised to do so as soon as you realise you’re having problems) as they could also help you sort out your problems and maybe even keep your home.
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