A lot of people think that lenders are nothing but stern, inconsiderate and heartless people. This is actually very far from the truth.
It is true that commercial lenders make money by creating loans. However, without such financing, a lot of us won’t be able to afford a home. Lenders are of great help because they make it possible for us to borrow their money so we can buy the house we want.
Some people who are struggling with their mortgage payments are afraid of opening up to their lenders about this problem. They think that telling the lender that there’s a great chance they can’t sustain making payments anymore will just make things worse.
Lenders will appreciate it more if you tell them that you are having a bit of trouble paying your mortgage than them just finding out that you’ve been delinquent for months. Opening up about these affordability issues will help them create a plan with terms that are more favorable. They will be willing come up with special programs that allow the borrowers to sort out and fix their financial dilemmas.
Here are the common special programs which can help address your delinquency problems.
Loan Modification
A loan modification is an agreement between a lender and a borrower to change the terms of a mortgage loan so as to make it more favorable to the borrower. It is otherwise known as ‘debt rescheduling.’
Although the modified terms will have a new contract, it doesn’t mean that there’s a new loan. Only the existing loan’s underlying terms are changed in a loan modification.
Any one or a combination of these changes can take place during a mortgage loan modification:
- reducing the existing mortgage interest rate
- extending out the payment term
- lowering the principal balance
The modifications made should have one goal — to help the homeowner better afford his/her monthly mortgage payments.
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Loan Forbearance
This is more common to borrowers who are about to face foreclosure. With a forbearance agreement, the lender temporarily consents to suspend any legal right to foreclose a home. Thus, a forbearance agreement is sometimes called a ‘foreclosure moratorium.’
It provides borrowers a short-term relief from their usual monthly mortgage payments. The lender allows the loan to stay delinquent for a specified period of time.
During the forbearance period, the homeowner is given the time to deal with any situation or problem that has caused or contributed to his/her inability to make mortgage payments.
So, how does the borrower deal with the delinquent payments? Depending on what has been agreed upon, the monthly mortgage payments can be temporarily reduced or suspended, or a lump sum settlement can be paid by the end of the forbearance term.
It must be clear to the lender that the borrower is experiencing hardship that has affected his/her ability to afford the monthly payments. Common situations would be a sudden loss of a job or an unforeseen health emergency.
Repayment Agreement
This is a good way to catch up on your missed mortgage payments. By the end of the repayment plan’s term, you ought to be current on your mortgage payments.
The repayment plan is designed in such a way that you can still make regular monthly payments towards your mortgage and pay a portion of the delinquent amount each month. This, without making it too heavy on your part.
How does a repayment plan work? During the specified time period, the total amount of delinquent mortgage payments will be divided over the number of months. The borrower will make his/her regular mortgage payments and a portion of the overdue amount each month. By the end of the repayment term, the borrower should be current with his/her loan.
Usually, the repayment period spans out three to six months. However, it isn’t uncommon to have a shorter or a longer period. This is because lenders will take into consideration the total delinquent amount and how much you can afford to pay each month.
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One of these programs may save your home from possible foreclosure. It helps you to keep your mortgage by allowing you to catch up on the missed payments. These plans provide temporary relief and enough time so you can work out finances.
Don’t hesitate to talk it out with your lender. They will be more than willing to help keep your home.
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