Worrying about your mortgage and repossession?

Repossessions of homes by lenders are expected to go up by 50% this year to 45,000 or 123 a day as a result of the credit crunch, according to the Council of Mortgage Lenders. Although this only a tiny fraction of the 11.8 million mortgaged homes in the country, could you be at risk?

The Financial Services Authority (FSA) estimates that 1 million of us could struggle to pay our mortgage this year and risk falling into arrears. It said that those with a high loan to value ratio on their mortgage of 90% and above, or those that have borrowed more than 3.5 times their income or have a mortgage over more than 25 years are more at risk. In other words, new homeowners are more likely to be victims of the credit crunch. If you fall into one of these groups or have all three risk factors, don't panic, there are many common sense things you can do to shore up your finances and cut your risk.

To make certain that you can pay your mortgage, the most important thing is to take control of your finances. Work out exactly what your outgoings are and what your disposable income is and live within your means. Don't take on more debt.

Get saving

To give yourself a cushion, you really need to get saving. Pick a top paying account, and pay in a small amount a month by direct debit. Ideally, you should have the equivalent of at least three month's income saved up.

Which is the best savings account for you? Let Moneyextra guide you to the right choice with our comparison service.

Top up your equity

Make your financial position stronger by increasing the equity in your home by paying extra each month. Most lenders allow you to pay 10% off the outstanding mortgage balance a year without charging you redemption fees. Overpaying on your mortgage can make a huge difference. Halifax reckons that overpaying £50 a month on a £100,000 mortgage over 25 years taken out on a typical variable rate of 7.5% would reduce the term of your mortgage by four years and save you more than £22,000. Overpaying by £100 a month would reduce the term by almost seven years and save you £35,000!

Moneyextra's mortgage calculators can help you work out what you can afford.

Switch to a better mortgage

Or, if you are on a standard variable rate (SVR), you could switch to a tracker or a fixed rate mortgage to reduce your monthly repayments. There are some attractively priced two-year fixed rates around at the moment from lenders such as First Direct and Chesham Building Society and the advantage of a fixed rate is you know what you will be paying every month.

Around 1.4 million of us are expected to come out of a fixed rate mortgage deal this year. Don't wait until your existing deal ends to shop around because paying at the SVR, even for a month, could cost you hundreds of pounds. Start your search of the market round three months before the end of the fix.

Sure about your mortgage choices? If you're not and you need someone to talk to, why not call us for independent, unbiased mortgage advice.

Get protection

Be prepared for any eventuality. Even though it may never happen, check out what your employer could be likely to pay you should you be made redundant. Also, find out if they hold any kind of income protection policy for you. Failing that, you might want to consider taking out mortgage protection or income protection insurance.

Could you pay your mortgage if you suddenly found yourself without an income through accident, sickness or unemployment? Check out mortgage protection now.

What if the worst happens?

If you are worried that you might miss a mortgage payment, your first port of call is your lender. Be frank with them and explain your situation. All lenders have trained advisers in their mortgage departments who are used to helping people in financial difficulty.

06 February 2008 © Moneyextra.com

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Our senior editor Robin Amlôt recommends you should consider taking independent financial advice before acting on any article. Please contact us for help with your individual circumstances if any assistance is required.