Help, I’m In Danger of Foreclosure!

Is there any way to renegotiate my mortgage payment? And should I? 

Back before the housing market’s bubble imploded, losing a home to foreclosure wasn’t the common occurrence it’s become, and banks didn’t care much for renegotiating mortgages, because they didn’t have to. But times have changed. In the past few years, lenders and banks have lost so much money to foreclosures that modifying or renegotiating a mortgage is not just more common, it’s a more attractive option to the loan industry than it used to be. In addition, the government is now offering incentives to lenders that will make loan modifications to help struggling homeowners.

The truth now is that keeping you in your home and finding a way to help you pay your mortgage is far more attractive to lenders now than it was a few years ago. If modifying your loan means you can continue to pay your mortgage, this is not only in your best interest, it’s certainly in the bank’s best interests as well.

There are a number of options that a lender has to offer a homeowner whose mortgage is in default. However, it’s important to know that not all lenders are always open to working with you in this way. It will come down to looking at many factors about you, your property, and your prospects and situation. These are the most common kinds of loan renegotiations that may be available to you:

A forbearance:
This is a short-term agreement between you and your lender that will allow you to put off your payments for a certain number of months without danger of foreclosure, in order to give you time for your circumstances to change so you can get caught up. It’s a good solution if you can prove your financial difficulties are temporary (e.g. – you’re starting a new job soon).

You should know that your payments are just postponed, however, not forgiven, and at the end of the term of your forbearance, you’ll need another plan for restarting your payments again, as well as paying back the total of the mortgage payments you missed. Generally, this means that the missed payments are added on at the end of the loan, which will increase what you’ve paid in interest.

A repayment plan:
For some owners, the missed payments are the result of what is only a temporary setback, and their income is such that they can afford to resume making their regular mortgage payments, plus an additional amount for awhile. The additional amount of money per month goes to cover the payments that were missed, and continues until that balance has been paid off, at which point the loan goes back to it’s original amount.

A loan modification:
Your lender may be willing to modify the terms of your mortgage loan so that the actual monthly payments are lower, making it easier for you to pay. This means that the terms of your original note will be changed, or modified to decrease your interest rate, and extend the terms of your loan, which will result in making your monthly mortgage payments smaller. They may also offer other options to modify the terms of the loan.

Banks and financing institutions are now much more willing to look at these three options before a homeowner falls so far behind on their payments that they simply can’t dig their way out. There are a couple of ways they could backfire, however. The biggest danger of making one of these arrangements is that you can’t follow through, and you end up losing your home anyway, sometimes after making additional good-faith payments that you’re simply not able to keep up.

It’s also important to know that a lender will look into your situation very carefully before refinancing or modifying your loan. Homeowners have been known to skip or miss payments in order to force a loan refinancing or modification, just so they would have lower monthly payments. Your situation needs to be dire enough that you are a good candidate for this remedy, but you still have to be in a position to make good on the new terms of your mortgage, whatever they are.

This is never a step to be taken lightly in any case, because your credit is still going to take a hit even if you and your lender work out amicable terms. It’s important that you be honest with yourself and your situation. Before making a move like this, you need to be sure that you’ll be able to handle the adjusted payments and terms of the loan once you’ve had a chance to catch up.