PLANNING ON IT: Mortgage stress can be cut

MORTGAGEE sales are increasing due to the recession and the property market downturn. If you are struggling with your mortgage payments, how can you avoid having to sell your house? Here are a few tips.
One of the first things to do is talk to your lending institution or a mortgage broker. Your lender should be willing to work with you to find solutions and avoid a mortgagee sale.
Most lenders offer repayment holidays of up to 90 days, which may be enough to let you build up your reserves or pay off other short-term debt to reduce weekly outgoings.
Another option may be to convert your mortgage to "interest only". This will have the effect of reducing the amount of your repayments because you are not paying back principal.
Yet another option is to extend the term of your mortgage, say from 20 years to 25 years, which will also have the effect of lowering your repayments.
All of these options should be seen as short-term solutions because ideally you should pay off your mortgage as quickly as possible.
A mortgage broker may be able to help you shop around for a mortgage at a lower rate of interest.
However, bear in mind that depending on your circumstances, there may be penalties involved in repaying your existing lender, so get this information from your lender first.
Selling your house because you can't keep up the mortgage payments should be a last resort.
Real estate agent fees, legal fees and removal costs will eat into your deposit, and there is always the uncertainty of whether property prices will move ahead by the time you can afford to buy again.
Liz Koh is a financial adviser, based in Paraparaumu. Her disclosure statement can be obtained free by calling 0800 273 847. She can be contacted on liz.koh@moneymax.co.nz or view www.moneymax.co.nz