How to Get Back on Track if You’ve Fall Behind on Your Mortgage
Falling behind on your mortgage can potentially lead to the loss of arguably your most important asset(s). In that light, you undoubtedly want to take your mortgage obligations and your financial health seriously.
Financial problems could threaten your ability to pay your mortgage on time. But don’t worry. If you need help, the approaches below may allow you to keep your assets even when you have missed some loan installments.
A loan modification changes the terms of your mortgage to make the monthly payments more affordable. Depending on your lender and the particular loan, the options for changes include a principal reduction, lower interest rates or an extension of the loan.
To understand the loan modification, you want to grasp how your payments are determined and applied. A typical commercial mortgage comes with an amortization schedule that shows the payoff of the principal over the loan life.
Online loan calculators illustrate the essential principle. With the amount borrowed, the length of the loan (such as 30 years, or 360 months) and the interest rate, you get a “principal and interest” payment each month. The schedule shows how much you pay on interest and the reduction of the principal at a particular time in your home loan.
When you change the principal, interest rate or the loan repayment period, you have a new amortization schedule. This means a different monthly payment of principal and interest. If the length of the loan changes, you pay the outstanding balance at the time of the modification over a longer period. With less to repay and more time to do it, you can expect lower monthly payments. However, you pay more total interest since you pay interest for a longer period of time.
A refinance does not simply address one of the terms of the loan. Instead, you have a new loan with a new (lower) principal balance, interest rate and a new repayment period. In this approach, the second loan (even if it comes from the same lender as the first one) pays off the first loan. The fact that you have a new loan means that you have a separate loan closing and the costs associated with it. These include document preparation, attorney title searches, and closing services and appraisals.
A low appraisal may derail a refinancing effort. If you owe more than the value of the home or you otherwise have small equity, you do not have enough to repay the first mortgage.
Your lender may approve a repayment plan if the late payments resulted from temporary financial distress, such as the result of a job loss or a medical problem. Candidates for repayment have to demonstrate that they are financially able to make loan payments after that temporary setback.
In a repayment plan, the loan holder spreads the total of your due payments and the late fees across at least several months. During this repayment period, you have higher monthly payments. Once you cure the default, your payments will return to normal.
Forbearance serves as a variant of a repayment plan. Rather you paying extra over a number of months, the lender delays on foreclosure or other collection methods for a certain period of time. Depending on the lender, you may continue with the regular payments with the obligation to pay the arrearage by a certain point in the future. These arrangements appeal to lenders if you have a forthcoming tax refund check, an inheritance or other lump sum payment sufficient to pay the deficiency.
When other methods are unavailable or you face severe financial problems from other sources, you have the option of bankruptcy. Often, a pending or imminent foreclosure sale or a mountain of other debts could force you to consider filing for chapter 7 bankruptcy.
Any foreclosure effort ceases when you file the petition. That even includes a sale of the property, so long as it has not been confirmed and finalized by the court or considered closed by applicable law. During the bankruptcy, the lender cannot proceed with any effort to collect on the loan unless it gets an order of relief from the automatic stay imposed when you filed.
To cure the repayment default that triggered the foreclosure you enter into a Chapter 13 wage earner plan. Your debts, including the outstanding loan balance and past-due amounts, are assembled to be handled through monthly payments that you make to a Chapter 13 Trustee. Normally, Chapter 13 plans last either three or five years.
When you successfully complete the plan, you resume paying the lender or loan servicer as you did before Chapter 13.
Catching up or avoiding default also means diagnosing and treating the financial distress that causes such a situation. With the aid of a reputable credit counseling agency or advisor, you may see places to lower monthly expenses and stop unnecessary use of credit cards. The services may also include assisting you with a repayment plan or other aid with your home loan or other debts.