How to Handle Mortgage Payment Problems

There are many methods that can be used to deal with a delinquent or soon-to-be delinquent loan:

Forbearance Agreement: Your lender allows you a period of time (usually 3 to 6 months) during which you can make lower or no payments. Unless the loan term is extended, later payments generally will have to be made up under a repayment plan.

Repayment Plan: This is a written agreement between you and your lender to help you make up missed payments. It typically requires a higher payment than the regular monthly mortgage amount for a few months until the loan is brought up-to-date. Don’t agree to a repayment plan you know you can’t afford – if you fail to meet the terms of the agreement, you lender may not give you a second chance.

Modification: A loan modification involves changing one or more terms of a mortgage, for example, reducing the interest rate, switching from an adjustable rate to a fixed rate, or extending the repayment period. Modifications are not easily granted, and there must be a strong reason for the request. Some of examples that could warrant a modification include loss of income due to divorce, a health issue, or job loss.

Refinance: If you have paid off a lot of your mortgage or can get a lower interest rate on a new mortgage than what you have now, refinancing may be able to give you a lower, more affordable payment. However, getting a new loan can be difficult if you are seriously delinquent on your current mortgage and/or have a low credit score.

Sell Home/Short Sale: If you feel that the mortgage is not affordable long-term and modification is not an option, it is generally better to sell your house than wait for your lender to foreclose. If the market is soft and you cannot sell your house for at least the amount owed on the mortgage, your lender may allow you to sell it for less. This is called a "short sale". (Your lender may forgive the remaining balance, or it may become an unsecured debt.)

Deed In Lieu of Foreclosure: Under this option, which the lender must agree to, you give your home back them. It generally only makes sense to do this if you are willing to leave your home but cannot sell it.

Next Section: Homeownership