Question: We're struggling badly with our mortgage, and have come close to using our credit card to help meet monthly payments, by withdrawing cash from an ATM and putting it into our bank account. Can we do this, and is it wise? BE, Basingstoke
Answer: Using a hole-in-the-wall to keep a roof over your head is a desperate move, to be avoided at all costs – but it's also one that many households now face. Late last year, research from the uSwitch.com price comparison site suggested that well over a million households had already used a credit card to pull cash from an ATM, in order to pay it into a current account to meet their mortgage and other vital bills.
Apart from the danger of relying on limited credit instead of regular income to repay a home loan, credit-card cash withdrawals are incredibly costly. The interest charged can be as high as 29 per cent; and unlike with normal purchases, where you're given up to 56 days interest-free credit if you pay it off on time, the interest begins to build immediately. Oh, and there's often a 2.5 per cent withdrawal "fee" to boot.
"Going to the ATM to pay your mortgage is a surefire way to come a cropper," says Richard Morea at the broker London & Country. "Worse, it's easy to do without your lender finding out."
Unfortunately, more home owners may soon have to turn to ATMs. Figures from The Council of Mortgage Lenders suggest that one in 53 homes is more than three months behind on mortgage payments. The CML's data says that 219,100 mortgages were in such arrears at the end of 2008, up from 166,600 just three months before and representing a huge hike from 127,500 at the close of 2007.
More chillingly, repossessions reached a 12-year high in 2008, with some 40,000 home owners losing their property, according to the CML; it expects the number for this year to nudge 75,000.
To avoid getting sucked into this black hole, Morea urges you to only use your credit card as an absolute, one-off last resort. It is far better to call your lender immediately and thrash out a less punitive solution. "Lenders really don't want to start down the road to repossession, as it can be very long, drawn out and costly, and there are plenty of other options you can consider," Morea says.
These options depend on the size, type and length of your mortgage, and how much equity you have, but could include a payment holiday; a temporary switch to an "interest-only" loan; or even an extension on the term of your loan. All will give you breathing space, but all come at a price: the interest will be recalculated and added to your home loan over the long term.
"Whatever you do, don't miss a payment without telling your lender," urges Melanie Bien at the broker Savills Private Finance. "That'll fire off alarm signals and swiftly sour any relationship."
If you're in increasingly grave financial trouble, you should visit a debt charity such as the Consumer Credit Counselling Service (phone for free on 0800 138 1111) or the Citizens Advice Bureau ( www.citizensadvice.org.uk/index/getadvice.htm).