The cooling down of the housing market has led to higher interest rates, increasing the mortgage payments homeowners with adjustable-rate loans pay. If paying a mortgage is currently a challenge, or you’re already in default, don’t worry. There are different ways of coping with an increased mortgage to avoid losing your home. Stay tuned!
1. Forbearance
Forbearance is a short-term postponement of loan payments. A mortgage forbearance refers to a mortgage service company allowing a lender to pause their monthly mortgage payment for a specific time. Often, mortgage service companies offer forbearance instead of compelling a house into foreclosure or letting the borrower default on the loan. When a home is forced into foreclosure or a borrower defaults, the mortgage service company suffers many financial losses.
There is a specific criterion used to grant debtors forbearance. After applying for forbearance, the mortgage service company determines if the debtor is undergoing financial difficulties due to job loss or diseases or whether they’ve been consistent in mortgage payment before giving them go ahead.
Once granted, debtors are given time (depending on the service provider) to pay the amount they owe as a collective sum or over time within a year. If the forbearance time-lapses and debtors still cannot pay, they may request to extend their forbearance period. Note that increasing periods are usually up to one to one-half years. Debtors should not wait until their houses are forced into foreclosure.
2. Loan Repayment Plan
A repayment plan is a structured way of compensating for missed mortgage loan payments over a particular time. Increased mortgage fees may sometimes see borrowers defaulting on their loans. Loan defaulting can easily lead to a foreclosure. To avoid foreclosure, debtors and service providers can work on a loan repayment plan. A repayment plan adds the past due amount to the current mortgage payments then spreads it over several months. This way, the mortgage becomes current.
3. Renting the House
Another excellent option for avoiding property loss is to rent the house. Renting a mortgaged home can help in mortgage payment, especially if the house has a solid rental market. Or, rental costs had increased beyond the mortgage fee since the debtor took the loan years back.
Another pro of house renting is that there’s no need for lender approval, it’s pretty inexpensive to do house repair, and the borrower remains the owner. The downside is that the debtor would need to move out and either rent a cheaper house or live with relatives. If the borrower’s mortgage payment difficulty was due to job loss, they can re-occupy the house and resume mortgage payment when they find a new job and the current lease runs out.
4. Loan Modification
Mortgage loan modification involves changing loan terms, such as the borrower’s monthly mortgage payment becoming affordable. There are different loan modification strategies. One may be reducing principal balance or interest rate, increasing the loan repayment period, etc. When modifying a loan, take note of the monthly alteration costs and the total money owed in the short and long term.
5. Lower Mortgage-Associated Payments
Lowering mortgage-associated payments can be another way of lowering the cost of owning a house. One way is selecting a more affordable cost on the property insurance, reducing total monthly home-related costs. Alternatively, debtors can determine if they qualify for property tax reductions in their location. Property tax abatements can lower monthly mortgage payments.
Moreover, borrowers can choose to end their private mortgage insurance (PMI), especially if they have enough equity in their homes. Doing away with PMI can prevent financial problems. Note that the PMI can come in handy if the servicer is compelling a foreclosure. So before doing away with it, read the PMI policy first or consult a real estate attorney for more clarifications.
6. Consider Cheaper Mortgage Providers
As with any property, some mortgage service providers are more affordable than others. So, take time to find out if your lender offers the cheapest rates. If not, then considering a better mortgage deal would be worth it. Although switching mortgage providers may result in debtors incurring early redemption penalties and paying lender administration fees, it may be a better option to save the extra monthly hundreds of dollars. The most important thing is for debtors to spend more time shopping around for the best and most affordable mortgage service providers.
Losing your home to mortgage service providers can quickly render you homeless. While keeping up with current mortgage payments is mandatory, sometimes life happens. In this case, seeking other options (discussed above) is better than waiting for foreclosure.
