You can do many things when you are in financial trouble with your home loan. One of the best things to do is to work with your lender or servicer.
This can include a forbearance plan that stops your payments or a modification to make the payment easier to afford. This can also help you avoid foreclosure and save your credit score.
Contact Your Lender
Call your lender when you realize you cannot meet your mortgage payments. Your lender may have short-term solutions to help you avoid foreclosure and keep your credit rating intact. One such solution is forbearance. This involves postponing your mortgage payments or reducing them temporarily. It is a good option for people facing financial hardship due to loss of employment but expects to be back on their feet shortly.
It would help if you also considered loan modification. This is a process of renegotiating your mortgages like Rob’s Loans in Denver, auto, or student loans to make the monthly payments more manageable.
Contact Your Lender’s Servicer
Your mortgage servicer, which handles payments on behalf of your lender, may have options available to help you avoid foreclosure. You can find your mortgage loan servicer’s contact information on your monthly statement, phone book, or website.
Your servicer may offer you a reinstatement agreement, which requires that you pay the entire past-due amount plus late fees and penalties by a specified date. This option works best if your missed mortgage payments are temporary and you expect a bonus, settlement, or tax refund that will enable you to bring the mortgage up to date in one lump sum.
You could also ask your servicer about a deferral, which moves your missed payments to the end of the mortgage and is due upon the sale of the property, refinance of the loan, or the payoff of the interest-bearing balance.
Talk to a Lender’s Counselor
The sooner you reach out to the lender, the better. They can’t help you if they don’t know something is wrong. Lenders don’t want to accelerate mortgages or foreclose on homes, and many are willing to work with you if you let them know what’s happening and when you expect things to improve.
In some cases, lenders will offer a forbearance plan that suspends or reduces the amount you must pay for a certain period to give you more time to get back on track. They can also modify your loan, making it more affordable for you in the long run. Ultimately, the best way to avoid foreclosure is to devise a plan. That might mean finding a second job, making budget cuts, or dipping into savings to help you through a temporary financial rough patch.
Refinance Your Loan
Refinancing your home loan can help you reduce the monthly payments and save on interest costs in the long run. However, there are some things you should consider before applying to refinance your mortgage.
For instance, you should know that mortgage rates fluctuate. Hence, the best way to secure lower mortgage rates is by raising your credit score and improving your debt-to-income ratio.
You should also know that refinancing comes with fees. Therefore, you should calculate the number of months that you would have to live in your house before recouping the costs of refinancing your mortgage.
Before applying, you should also ensure you have all the required documents, such as paystubs and bank statements. This will speed up the process of application.
Work With Your Lender
The earlier you communicate your financial difficulties, the more available solutions. All lenders have hardship teams prepared to help their customers in tough times. They may be able to change your loan terms or temporarily pause or reduce your repayments (called a ‘hardship variation’). Contact them before you receive a default notice. If they refuse, they must give you a written reason and provide details of their internal dispute resolution process.
However, remember that late payments will hurt your credit score, and making all payments on time is essential. Try using a personal check or direct debit to have a clear paper trail of your expenses. Consider loan consolidation if you can afford it — it can lower your interest rate, simplify repayment and your monthly payment amount.