Entering into a mortgage loan is a long-term agreement that you're locked into until you pay the loan off, either by paying across the term of the loan, or by selling the property and paying the loan off out of the proceeds. During this time you're likely to experience changes in your financial situation, and some changes can result in a hardship. If you can't afford with the current mortgage payments and need a little breathing room, your lender might renegotiate the loan terms for you, but each lender operates differently.
Mortgage Loan Basics
Once your mortgage loan application is approved, you agree to the terms and conditions set by the lender -- including the interest rate and repayment term length. Repayment terms are generally long periods of time, such as 15 or 30 years. Until the loan is paid in full, you're locked into the terms that were given to you at the closing.
Talking To Your Lender
If you're facing some sort of financial difficulty due to unforeseen circumstances that will prevent you from paying all or part of your mortgage payment each month, such as a job loss or high medical bills, you should reach out to your lender as soon as possible. You can explain your situation to see if they are willing to help or renegotiate some terms of your mortgage. You may be eligible for a loan modification or a refinance loan. It's best to contact your lender before you've actually missed a payment. In addition to your lender, the U.S. Department of Housing and Urban Development also provides a listing of counseling agencies on their website who are approved to help homeowners in fear of foreclosure.
Loan Modification Programs
If your lender agrees to renegotiate the terms of your loan, you'll go through a loan modification program. When a mortgage loan is modified, the lender agrees to change the interest rate, repayment term, or both in order to make it more affordable for your financial situation. There will be a few documents to sign, but not nearly as many as you signed at the original closing. In addition to modification programs offered by the lender, the government sponsors the Home Affordable Modification Program, called HAMP. There are specific requirements you must meet to qualify for this program. The total unpaid loan balance must be less than $729,750 for a single family home, you must be experiencing a financial hardship, and you'll need to show proof of income that can support the modified payments.
If you can't modify the terms of your loan, you might be able to get a refinance loan. When a mortgage loan is refinanced, a new loan is actually taken out and used to pay off the existing loan. Homeowners generally choose to refinance their mortgages to get a better interest rate or to extend the repayment term of the loan. You'll need to meet the approval criteria, which are similar to the requirements you passed for your original mortgage. The lender will check your credit score, verify your income, and look at your other debts. Additionally, a property appraisal will likely be required.
Some lenders might require you to be late on payments before agreeing to renegotiate the terms of the loan. Be advised that the lender will ding your credit score if you make late payments or enter into default on the loan. Not only will this hurt your credit score, but it can hurt your chances of getting approved for a refinance loan.
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- U.S. Department of Housing and Urban Development: Foreclosure Avoidance Counseling
- Zillow: What is a Loan Modification?
- Making Home Affordable: Home Affordable Modification Program
- MSN Money: 11 Essential Loan-Modification Tips
- Federal Reserve Board: A Consumer's Guide to Mortgage Refinancings
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