Most people pay for a house using a mortgage. While you may have the resources that enabled you to secure a mortgage, there may come a time when you’ll have a hard time paying for your dues. This could be due to economic hardship or other unforeseen circumstances.
How To Overcome Mortgage Struggles
If you are having difficulties keeping up with your mortgage payments, know that there are some options available to you that could help ease the financial burden. The following are four options to consider if you’re struggling to pay your mortgage:
Loan Modification
This is when a homeowner and lender agree to change the mortgage loan terms to make it more affordable. There are three ways to modify a loan — extending the loan term, lowering the interest rate, or changing the type of loan from an adjustable.
Some homeowners have a 15-year mortgage. To modify their loan, they have the option to turn this into a 30-year mortgage. While this means extending the loan term, homeowners can save on the monthly payments.
Homeowners can also ask for a reduction in their interest rate. If the current interest rate is five percent, the homeowners may be able to lower this to three or four percent. This can significantly affect the amount of money owed each month.
The last option for a loan modification is changing from an adjustable-rate mortgage to a fixed-rate mortgage. This could be beneficial for struggling homeowners because their interest rates increase. A fixed-rate mortgage has the same interest rate for the duration of the loan, so this would offer stability.
Refinance
This is when a homeowner takes out a new loan to pay off their current mortgage. The new loan will have different terms, including a lower interest rate or extending the loan term.
Homeowners may also be able to take cash out when they refinance. This can be helpful if you need money for home repairs or other expenses. Remember, though, that taking cash out will increase the amount you owe on loan.
Many homeowners choose to refinance when interest rates drop. This could save you a significant amount of money on your monthly payments.
Forbearance
Under this option, the lender agrees to temporarily reduce or suspend your mortgage payments. This is common when the borrower loses their job or encounters a medical emergency.
Forbearance is typically for a period of three to six months. During this time, you don’t have to make payments. Forbearance does not mean you no longer have to pay the months owned. You will pay for the debt in a lump sum or through a modified payment plan.
Deed in Lieu of Foreclosure
With this option, the homeowner signs the deed of their property over to the lender. This is an alternative to foreclosure and could help your credit score.
Not all lenders will accept a deed in lieu of foreclosure. You may have to go through a short sale process first. You have to sell the property for less than what you owned on the mortgage, and the proceeds go to the lender.
Best Practices When Struggling To Make Mortgage Payments
You may be in financial trouble, but that does not necessarily mean you should already give up your home. The following are some best practices to follow if you find yourself struggling to make mortgage payments:
Communicate With Your Lender As Soon As Possible
Many homeowners would try to ignore the problem and hope that it will go away on its own. However, this is the wrong thing to do. The sooner you talk to your lender, the more available options are.
Your lender does not want your home to go into foreclosure. They would much rather work with you to find a beneficial solution for both parties.
Keep in mind that you will need to provide financial documentation to your lender. This could include pay stubs, tax returns, and bank statements. Prepare yourself to answer questions about your income and expenses.
Understand All Your Mortgage Options
Once you talk to your lender, ask about all the different mortgage options available. This could include loan modification, refinancing, or forbearance. Make sure you understand the terms of each option and how it will affect your monthly payments.
For example, with loan modification, you may be able to lower your interest rate. However, this will extend the term of your loan. On the other hand, refinancing could get you a lower monthly payment, but you may have to pay closing costs.
Shop Around From Different Lenders
If your current lender is unwilling to work with you, do not hesitate to look for other lenders. Many reliable lenders out there may be more than willing to help you keep your home. When looking for another mortgage lender, compare interest rates, fees, and terms.
You need a reputable lender who can offer your different mortgage options that can fit your current needs. Many lenders practice responsible lending. This means they are willing to work with you to find the best solution for your current financial situation.
It also helps if your new lenders can offer fast closing times and have years of industry experience. This will ensure that you are going to get the best deal possible.
Do not forget to read the reviews of the new lender before making a decision. This will give you an idea of what other borrowers have to say about their experiences.
If you struggle to make mortgage payments, take action as soon as possible. The sooner you talk to your lender, the better. Know that you have rights as a borrower, and many reputable lenders can help keep your home. You can always use this guide to help you find the best options when trying to keep your home during these challenging times.
