Capitalise the arrears
If a client’s mortgage arrears have built up, a lender can be asked to add the arrears to the total outstanding and for interest to be charged on the new capital amount. This can be included in the remaining period of the mortgage, or the repayment period may be extended as well. This is known as capitalising the arrears.
This strategy is useful when there is an improvement in the client’s circumstances following a period in which arrears have built up. For example, if a client has recently become employed after a period of unemployment or returned to work after a long period of sickness, provided their payment record was previously satisfactory, most creditors will agree to capitalise the arrears.
Creditors only normally capitalise arrears if the property’s market value is significantly greater than the amount of capital currently outstanding. They do not usually do so if it would lead to the capital outstanding being more than the value of the property.