Six options when you can’t pay your mortgage

  • If you miss your mortgage payments, you will incur late fees and your credit will suffer.
  • After three late payments, the lender can initiate the foreclosure process. You may lose your home.
  • Call your loan servicer to discuss available alternatives before you fall behind on your payments.

If you lose your job or face other financial hardships, paying your bills or even your mortgage can be difficult.

But skipping mortgage payments can have serious consequences, including losing your home.

Are you struggling with monthly mortgage payments? Here’s what you need to know about outstanding payments and some alternatives available.

What happens if you miss a mortgage payment?

When you default on your mortgage payments, several things can happen. First, the mortgage servicer will assess the late fee (up to 5% of the late fee) and add it to your mortgage balance.

If a payment is at least 30 days late, it will also be reported to the three major credit bureaus. According to FICO, this can reduce your credit score by up to 83 points.

“Non-payment on your mortgage has a direct impact on your credit score,” says Austin Horton, Director of Sales and Business Operations at Homie Loans.

Continuing nonpayment will keep your score going down every time the lender reports. Being 90 days late can lower your score by 47-180 points. The exact amount depends on your starting score, account balance, and other factors.

What happens if you fall behind on your mortgage payments?

Delinquent mortgage payments can lead lenders to foreclose on your home. Usually this happens after the payment he is 3-6 months late.

That process usually goes something like this:

  • The lender will contact you to ask for repayment. They may call, send letters, or both.
  • You will receive a reminder or notice of acceleration by mail. This gives you 30 days to catch up with the payment.
  • If the loan cannot be brought up to date, the lender will schedule a sheriff sale or public trustee sale. This is when they sell your home to recoup their losses. Receive the sale date notice in the mail and tape it to your front door.

If your state has a redemption period, there may be a way to get your home back even after it’s been sold. To do this, you may have to pay overdue amounts, the lender’s attorney fees, additional interest, and other costs.

6 options if you can’t afford your monthly payments

If you think you won’t be able to make your monthly payments, contact your mortgage servicer as soon as possible. they may be able to work with you.

“Servicers and lenders generally view foreclosure as a last resort,” said Craig Martin, managing director and global head of wealth and lending intelligence at JD Power. “It can be very expensive and a long process that they want to avoid.”

Here are some options you can consider in lieu of non-payment.

1. Tolerance

One option is to call the loan servicer and ask about forgiveness. This allows you to stop your mortgage payments for a period of time, or even reduce your payments in some cases.

There are usually no fees or penalties for this, and no additional interest will be charged during the grace period.

However, you will eventually have to repay the outstanding amount. Lenders may allow repayment plans to spread those costs over time. Or you may have to pay it all off at once. You may also be able to defer outstanding payments until the end of the loan term. The lender will contact you towards the end of the grace period to discuss options.

2. Refinancing

Refinancing can reduce your monthly mortgage costs and make payments more affordable.

For this strategy to work, you must qualify for a lower interest rate than your current mortgage. Or you will need to refinance for a longer term loan. This allows you to spread your balance over more months, thus reducing your payments.

Note that refinancing comes with closing costs. Freddie Mac estimates that these cost him about $5,000 per loan. Some lenders may be able to roll these closing costs back onto your loan balance. This increases interest costs in the long run.

3. Loan modification

Loan modification may also be an option. This is when the lender agrees to modify the terms of the loan to make it more affordable. This includes extending the term of the loan, lowering the interest rate, or possibly reducing the loan balance.

“If you’re facing financial difficulties, you can change the terms of your mortgage and get a loan,” says Christian Mills, a home equity conversion mortgage (HECM) loan specialist at Reverse Mortgage Funding. “Depending on the options offered by the lender, we may be able to extend the repayment term or lower the interest rate.”

4. Repayment plan

Another strategy is to ask your lender about setting up a payment plan. These allow you to recover outstanding payments over time.

“Lenders want to get paid, so they often work with you to come up with a plan to catch up,” says Martin.

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5. Contact a housing counselor

A professional housing counselor can help determine the best path forward. This guidance is usually free.

If you don’t know where your nearest counselor is, the US Department of Housing and Urban Development’s online search tool can help. All results are HUD accredited counseling agencies.

6. Other options

Your lender may be happy to offer other options as well. One of these may include a short sale. This allows you to sell your home for less than what you are borrowing for your mortgage.

Deeds to replace foreclosures are another potential strategy. These arrangements allow property to be turned over to the lender and avoid foreclosure. This allows foreclosures to be excluded from your credit report. In some cases, the lender may cover the moving costs.

How to prevent mortgage delinquency

The best strategy is to avoid missing a mortgage payment in the first place. To do this, make sure you have a healthy emergency fund. This allows you to have cash to cover your payments if you lose your job or struggle financially.

“It’s a great idea to have six months in reserve just in case something happens,” Horton says. increase.”

You should also ensure that you have a sufficient household budget and a good credit score. A good credit score gives you more options, such as refinancing, if problems arise.

Finally, if you think there is a problem with your payment, contact your loan servicer immediately.

“Be proactive with your servicer,” says Martin. “There are various options available, and waiting is unlikely to improve the situation.”

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