Do you know what occurs when your mortgage lender goes bankrupt?April 9, 2020
It is a HUGE incident to experience for a borrower. Not always the financial issues happen from the side of the mortgage bearer. Sometimes, unprecedented occurs to the other hand, and the more significant figure gets disturbed. It means the lender gets into a substantial financial crisis, i.e. bankruptcy. The condition is critical, and countless doubts are natural to occur.
Have you ever gone through such a situation? If yes, then isn’t it better to know the different consequences that occur when mortgage lender goes penniless? After all, it is beneficial to know about an essential aspect of the property market.
The MANY concerns of the borrowers
A borrower is always worried about the mortgage obligation. A slight change in the situation can make him/her get anxious. Below are the answers to all the concerns a borrower can have.
Do I need to keep paying installments?
Yes, you have to. It may sound like a beautiful dream that you may not need to make repayments to the lender as it is bankrupt now. However, sorry, but you have to pay the monthly installments without any change in the routine.
Some other company/bank/Government will take over the lender
Usually, when a bank or a mortgage lender gets empty in its funds, the other bank or Government will take over the lender. This fact tells that your monthly installment will continue in the same manner.
You get the notice with the following information from the new service provider –
- A detail of the latest decision of the shift of your property loan
- The name and address of the new bank/servicer
- The precise date when the new servicer will start taking your payments
- Contact numbers of both the existing and the new servicer. You can contact any of them to know about the transfer of the mortgage.
What about the overall terms and conditions?
No change occurs on that part, and more or fewer things remain the same. Usually, the borrowers get panic on this part when something like this happens. They get worried as they think that maybe the new lender will apply its rate of interest and repayment plans, and that could be intimidating.
- You get notified from the new service provider that there is no change in the terms and conditions. The bankruptcy of a lender has nothing to do with the borrowers. They never have to bear any change in the mortgage deal.
Example – if you have an escrow account with the previous lender, to pay insurance premiums or property taxes, it will remain the same. The new bank cannot close the account.
- You get a grace period that is usually 60 days. It prevents you from any late fee if you send the mortgage payment to the previous lender mistake. Your new servicer cannot send a negative report regarding that payment to the credit reference agencies.
Some general information
Now when your major doubts are clear, it is time to know a bit more on the general side.
One thing that may happen with the new servicer
Customer service, yes, this is the only aspect that may annoy you. The new provider may not be perfect in its way of tackling customers. However, this is not necessary. Maybe you find the new one, much better than the previous one. It is more about your luck that may turn in your favour or against you.
What if a borrower wants to leave the new servicer for a remortgage?
Well, that is not a problem. The new servicer cannot stop you from switching to the other lender for remortgage purpose. However, if you want, it can offer you a new deal from its available mortgage products. But for that, the factors like payment history, credit score, recent financial behaviour will come under consideration.
As the mortgage market is unpredictable, a broker can help you find a suitable mortgage deal. But in case you have got into a poor credit situation, you need to have a reliable income status. After all, the remortgage makes you go through an entirely new process of a new mortgage deal. Your broker can always tell you how to get a mortgage with bad credit but good income. Just try to stay organised in your finances.
What if the new mortgage servicer is unfair in its practice?
- There can be issues with the new servicer, and you may find that the new provider is not fair or polite with you. Do not worry, you may have gone through a significant change due to the bankruptcy of your lender, but your rights are safe.
- You should first contact the customer care to express your concern about the related issue. Most of the problems get solved there only as the transfer of a mortgage brings the new servicer under all the responsibilities.
- You can send a complaint to the regulatory authorities like the Bank of England, explaining the complete episode from bankruptcy issue to the transfer. It is usually the last option that you should opt for. Sometimes, some mistakes happen due to the ill-treatment or careless attitude by an individual in the staff. However, once you inform to the higher authorities, the complaint gets immediate attention, and you get instant relief.
Does the bankruptcy of the lender affect the credit rating of the borrower?
The situation of the lender has nothing to do with the credit rating of the loan bearer. The repayments, terms and conditions, all remain the same, and nothing changes. In short, there is no adverse effect on the financial situation of the borrower. But one should keep paying the instalments as some people get careless about the payments when bankruptcy happens.
Many things come in the mind of the borrower when his/her lender goes bankrupt. But the people should be aware of the fact that the rights of a borrower are always protected. Under the strict rules of the regulatory authorities, the mortgage bearers can never get any bad experience. For a responsible attitude, you should keep everything in knowledge as that only a financially literate person can manage to have a peaceful life.