If you're contemplating doing a 4-to-5 lug swap on your Cougar but really don't want to mess with changing out your rear axle shafts, or maybe your current rear axle has seen better days, then a complete 5-lug rear axle swap is probably going to be a better deal for you.
Please keep in mind that there may be modifications necessary to your braking system in order to swap in a new rear axle, whether you're keeping drum brakes or upgrading to rear discs. Always consult a professional if this job is bigger than you're willing to tackle.
Since the 1994-98 Mustangs and the 1985-88 Cougar/T-Bird basically have the same width rear axle, this is probably the most logical step. All mounting points are the same as what's on your car now, making this a very easy swap. The V6 Mustangs had the 7.5" rear end while all V8's had the 8.8", and all had at least a 3.08 gear. Keep in mind that all 1994-up Mustangs had disc brakes, but the rear rotors are solid, not vented. Only the Cobras had vented rear discs. To use a 1994-98 Mustang rear in your car you will need to install emergency brake cables from a 1987-88 Turbo Coupe.
The SN-95 Mustang had a brake upgrade across the board beginning with the 1999 model year. This was because Ford opted to use the independent rear suspension in the Cobra. Since changes were in order for the entire chassis, Ford deigned this the perfect opportunity to address the issue of better brakes. And since the track was wider out back for all Mustangs, this becomes a very viable solution for those wanting a bit more stability, or for extra clearance of those ultra-wide rims. We believe that this 1999-up rear is the same width as the 1984-92 Mark VII rear. The axle shafts are at least an inch longer from previous SN-95 Mustangs, that much is certain. Also, all 1999-up Mustangs had at least a 3.27 gear. You would need to install emergency brake cables from a 1987-88 Turbo Coupe.
The Lincoln Mark VII was a much heavier car than our Cougars ever were, even with ours fully optioned. Therefore its rear axle is a very beefy piece, and it's also wider by about 1" per side to accommodate a wider track for better stability. The Mark VII was one of the only older Fox cars to have 5-lug wheels so it's the perfect solution for anyone wanting to get better brakes, gearing, a wider stance, and the 5-lug pattern in one shot. In general the Mark VII 8.8" rear axle came with a 3.27 gear and 10.5" vented rotors. Traction-Lok was an option though, so it's not a guarantee; check the axle tag to be sure. And some early Mark VII's even had drum brakes. Be sure you know what you're getting first. Again, all mounting points are identical to your car now. You would need to install emergency brake cables from a 1987-88 Turbo Coupe.
Long the popular choice with drag racers, the durable Ford 9" rear axle is best suited for strip and heavy-duty street applications. "Bulletproof" is an understatement concerning these bad boys, and with any imaginable kind of component available (spools, gears, Detroit lockers, etc.), your budget is the only limit. In order to fit your Fox Cougar chassis, a custom-built 9" is usually recommended, although a Mustang unit will usually fit very well. This is one area that's definitely best left to a professional shop. If you're tubbing out your car, the narrowing of a Ford 9" should be no sweat for the pros.