Sunday 6th of December 2009
If you have a tracker mortgage you will have enjoyed a lower interest rate repayment as the Bank of England continues to hold the base rate at 0.5 per cent.
This reduction in monthly mortgage repayments may have left you with a little bit extra cash in your household coffers.
But rather than use it to clear your debts, you may have decided to treat yourself and spent the money on a holiday or hit the high street and took advantage of the credit-crunch sales. In this case, an individual voluntary arrangement (IVA) could prove to be of assistance.
According to the Council of Mortgage Lenders (CML), you should have kept your tracker mortgage repayments up at the previously high interest rate so you can clear your loan as fast as possible.
The lure of having a little bit extra may have resulted in you topping up your store or credit card debts with a few extra purchases you normally would not buy.
However, you may be in for a shock when the interest rate on your tracker mortgage rises once again. With less income to hand, this could mean you neglect your credit and store card repayments as your mortgage will be your priority.
As mentioned, one way to get your finances back on track is to repay unsecured debt through an IVA. If you have been avoiding the real extent of your debt problems, you may have a few questions on IVAs.
While an IVA cannot help you repay your mortgage, it can reduce the interest on your unsecured debts - like credit and store cards - meaning your monthly repayments will be lower. Any leftover money could then go on pushing up your mortgage repayments.
"If you’re a borrower who’s on a variable interest rate and you’ve seen your borrowing costs reduce as a result of reductions in base rates, you may decide to overpay your mortgage in order to clear the commitment earlier than you anticipated," says Bernard Clarke, a spokesman for the CML.
But if this is not the route of action you chose, repaying your unsecured debt through an IVA could mean that when interest rates do rise again, you can keep up more with the increase in mortgage repayments.
And by keeping up with both mortgage and debt commitments, your home will be safe from repossession from your lender, one of the benefits of choosing an IVA rather than bankruptcy.
By Neil Burton
- House price rise 'may not indicate recovery'
- Equity release 'needs to be increased'
- Need for IVA help could increase as expert predicts reduction in lending
- Government announces 'breathing space' for those needing IVA help
- Lack of subprime lending creating need for IVA help, expert suggests
- IVA FAQs could assist those unable to stop splashing out on luxuries
