The sight of a widow and her family being evicted from their farm in Waterford and scenes of men in balaclavas removing a family from their farm in Donegal are guaranteed to send shivers down the spines of anyone who has a loan from a bank or a building society.

What will happen if their circumstances change and they fall behind in loan repayments? Will their homes, business premises, cars and personal possessions be repossessed? Will they end up homeless?

Banks and building societies repossess a small number of private houses annually. Sometimes this happens after the borrower and the financial institution have reached an agreement on dealing with an outstanding loan.

But in most cases, repossession is the traumatic end of a long period of either fraught communications or complete failure to communicate and deal with the problem.

The most important thing for any borrower to remember is to get in touch with their lender as soon as they find themselves in difficulties - even if the problems will be short term.

Money borrowed to buy a home is the largest loan most people will ever take out. A typical mortgage agreement has a term of 20 years. At current interest rates, an £80,000 mortgage would involve monthly repayments of £654 over a period of 20 years, or £756 per month over 15 years.

Monthly repayments come from after-tax income and tax relief on interest has been reduced to the standard 26 per cent tax rate. So mortgage repayments amount to a very significant proportion of monthly income for most borrowers, particularly in the early years of the loan.

When problems arise - such as unexpected serious, uninsured illness, temporary job loss or change, or unplanned large expenses such as car repairs, or helping out extended family members - many borrowers will have difficulty meeting repayments for a few months. Particularly in the early years of the loan, many borrowers do not have the financial flexibility to deal with serious changes in income/ commitments without some assistance from the lender.

Sometimes the problems faced by the borrower may be long term. Perhaps a person has been made redundant with no lump sum and little prospect of finding another job. Lenders say most long-term problems arise because of redundancy, marital break-up, alcohol abuse or spouses spending without regard to income, or a combination of these factors.

What should a borrower who falls behind in monthly mortgage repayments do? The secret is to approach the lender quickly. It is in your own interests to protect any equity you have built up in your home, and lenders will always be well disposed to facilitating someone who is trying to help themselves.

For example, a person who bought a £95,000 house using a mortgage of £80,000, 10 years ago and has been repaying the mortgage, could have a property worth £180,000 and a remaining mortgage of about £54,000. So the borrower now has "equity" or value of £126,000 in the house. After five years a borrower would still have £70,000 to repay, but the house could be worth £150,000, so the equity would be £80,000.

In the first case, the borrower and the lending institution could agree to extend the term of the mortgage and thereby reduce the monthly repayments. Or the borrower could opt to sell the house and repay this loan, thus releasing about £126,000 from which arrears could be repaid and another house bought with a smaller mortgage more in keeping with the changed economic circumstances.

Most lenders will be happy to put arrears aside for a period to get the borrower back on to normal repayments if the situation is regarded as temporary. Agreement can be reached to clear arrears over a period of time or to add them to the original loan.

As one lender commented "as long as we see there is good intent on the borrowers' side, we will reach some mutually acceptable agreement".

But the borrower who keeps the lender in the dark and lets the arrears mount up is doing himself/herself no favours. The arrears keeps mounting as unpaid interest is added to the total loan outstanding. And if the situation continues the borrower will become liable for any interest costs that the lender incurs in trying to collect the debt.

The additional costs are incurred by not dealing with the problem - interest on the unpaid interest and legal costs - can eventually wipe out any equity the borrower has built up in the property.

What many people found difficult to understand in the Waterford - and other cases - is how a borrower could take out a loan and make some repayments but then, after a period of failure to meet repayments, find that they owed more than they had originally borrowed.

That happens because when monthly repayments are missed the interest element is added on to the capital amount owed to the lender. In this way the amount owed starts to increase as soon as repayments are missed. In periods of high interest rates, the addition of missed repayments will quickly increase the total capital owed.

And at least one lender levies penal surcharges on borrowers who fail to make repayments. Industry sources said that one well-known lender adds a surcharge of five percentage points on the amount of the arrears. Between the addition of unpaid interest to the original amount borrowed and the imposition of penalties, the amount "borrowed" can increase very quickly.

Lenders have a serious responsibility in terms of assessing people for loans and deciding on the amount to lend. Each loan application is assessed on two main criteria: the repayment ability of the borrower and the security involved. Repayment ability is by far the most important criteria, according to Mr Martin Walsh of the EBS.

"We look at the borrower's income, the probability of that income continuing, the borrower's other commitments and whether that income is likely to be subject to shocks. For example, with a junior civil servant on an annual income of £15,000 there is a high probability of that income continuing or even increasing, while a computer salesman's £100,000 annual income is unlikely to be stable at that level."

Most borrowers will be offered 2 1/2 times the main income and up to 1 1/4 times the second income and 80-90 per cent of the cost of the property.

Lifestyle expenditure has a major effect, according to one lender, who added that borrowers need to be "mature" about adjusting their lifestyles in line with their income, their financial commitments and changes in their circumstances.