Can you give your house back if you can’t afford your mortgage?
When the financial burden of paying your monthly mortgage becomes overwhelming, you might be considering handing back the keys of your property back to your lender as a solution. While this may seem like a way out of a bad situation, it’s important to understand the potential consequences involved.
Handing back the keys essentially means voluntary repossession. While it may prevent the trauma of eviction and court proceedings, it results in an immediate loss of ownership. The lender gains possession of the property and you lose any equity you may have built up.
Voluntary repossession can also severely impact your credit score. It’s recorded on the credit file similar to involuntary repossession, indicating to future lenders that you have defaulted on your mortgage. This could make it difficult to secure credit in the future, including loans, credit cards, or even future mortgages.
Handing back your home doesn’t release you from your financial obligations either, as in many cases, the sale of the property may not cover the outstanding mortgage balance, leaving you still owing on the rest of the amount, which the lender may pursue through legal means.
When your lender takes possession of the property, they will be in control of the sale process, which means the property may be sold at auction or through other means that may result in a lower sale price than if you had sold it yourself. Any proceeds from the sale will first go towards paying off the mortgage debt and associated fees, with any surplus (if any) returned to you.
In some cases, even after your home is sold, there may still be a shortfall between the sale price and the outstanding mortgage debt, including interest, fees and legal costs. The lender may seek a deficiency judgement to recover the shortfall from you which could result in further financial strain and legal proceedings.
Beyond the financial consequences, handing back the keys can take a significant emotional toll on you and your family. It often signifies the loss of a home, stability and a sense of security. Dealing with the aftermath of repossession can lead to feelings of shame, failure and uncertainty about the future.
Before resorting to handing back the keys, try to explore alternative solutions. This may include negotiating with your lender for a temporary repayment plan, seeking assistance from the government support schemes, or considering selling the property through a quick sale process to avoid repossession and minimising the impact on your credit score.
Whilst handing back the keys may seem like a way to avoid the stress and stigma of repossession, it’s really important to understand the full consequences. From the immediate loss of ownership to the long-term impact on credit and finances, the decision should be carefully weighed against alternative solutions. Seeking advice from financial advisors, housing counsellors, or legal professionals can help you get through this challenging situation with greater clarity and understanding.
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