Mortgages act as a gateway to home ownership for countless Americans across the country. Although mortgage lenders are careful to assess the potential risk attached to mortgage applicants, unexpected events may cause a seemingly qualified candidate to fall behind on their mortgage payments. In situations such as this, a borrower may choose to request a mortgage extension. To extend a mortgage, the borrower must contact the financial institution servicing their loan and discuss available terms.
TL;DR (Too Long; Didn't Read)
To extend your mortgage terms, you will have to speak directly with your lender. Keep in mind that other mortgage alterations could be available that provide more advantageous options to ensure that you can meet your monthly payments and keep your principal from expanding.
Extending a Mortgage – The Basics
When a borrower first agrees to a mortgage, they enter into a contractual obligation with their lender. The terms of their repayment, including the specific length of time over which their mortgage will be repaid and the size of each monthly payment will be clearly dictated in this agreement.
Due to the legally binding nature of this agreement, the lender is under no obligation to alter the terms of the original mortgage agreement. However, it is in the best interest of the lender to accommodate the borrower's needs, up to a certain extent, to stave off the threat of foreclosure and the loss of a potentially larger sum of funds that would have been accrued through the lifespan of the mortgage.
A mortgage extension will often take the form of an increased repayment period, which, in turn, will lower the size of the required monthly payments. The length of the extension will directly affect the size of the monthly payment reduction. The longer the extension, the smaller each monthly payment.
Mortgage Extensions and Interest
Although a mortgage extension will make monthly payments more manageable for borrowers, it won't lower the total sum of money that will be repaid over the life of the mortgage. In fact, an increased length of repayment, combined with the agreed-upon interest rate, will increase the amount of money that will be paid to the mortgage lender over the length of the loan.
This is one of the most significant considerations that borrowers should take into account before requesting a mortgage extension. Short-term relief is possible through the extension, but the overall repayment burden will only increase in size. In the event that a borrower was forced to accept above-average interest rates due to mediocre credit scores or a checkered financial history, this could significantly raise the total cost of borrowing over the lifespan of the loan. With that in mind, it is critical that individuals considering an extension spend ample time calculating how their current interest rate will affect their total repayment sum.
Alternatives to Mortgage Extensions
In the event that a borrower decides that the terms of their extension are not in their best interest, other mortgage modification options may also be available. For example, mortgage refinancing could be a viable tool for providing the needed relief while simultaneously avoiding an extension. As part of the refinancing process, borrowers will work with their lender to establish a lower interest rate for their debt. This, in turn, will help reduce monthly payments.
With any mortgage refinancing, however, comes an entirely new set of closing costs. These fees could prove to be unaffordable for some borrowers, who may already be struggling to meet their immediate mortgage payment. Some online services, such as Bankrate's mortgage refinancing calculator, allow individuals to calculate precisely how long it would take for the money saved on interest from their mortgage refinancing to match the sum of closing costs they were required to pay to secure the agreement.
Federal Loan Modification Programs
Prior to 2016, borrowers could seek assistance from the federal government as part of the Home Affordable Modification Program (HAMP) and Home Affordable Foreclosures Alternative (HAFA) to help alleviate their mortgage issues. Federal loan modification programs provided borrowers with the opportunity to not only extend the length of their mortgage loan but also secure more advantageous interest rates. According to federal guidelines, the length of a mortgage could be extended up to 40 years.
These programs offered powerful reductions in monthly payments, which can help ensure that borrowers are not forced into foreclosure unnecessarily. In some situations, the actual size of the loan principle could also be reduced. Although mortgage holders will not be able to take advantage of the HAMP and HAFA programs, loan assistance through the Federal Housing Administration, U.S. Department of Veterans Affairs and Fannie Mae remain intact.
Claiming Loan Forbearance
While forbearance is not technically a means to extend a loan, it does provide borrowers with the opportunity to temporarily "pause" their repayment obligations. The specific terms of a forbearance will largely depend on the financial circumstances of the borrower and the preferences of the lender. For example, some lenders may allow borrowers to strictly pay the interest on their loan during their forbearance period.
In the event that repayment is entirely paused, a lender will resume the mortgage repayment terms at a point mutually agreed upon by both parties. Forbearance represents yet another effective tool for both lenders and borrowers that can be used to reduce the likelihood of foreclosure and save both parties a significant amount of technical and financial trouble.
Requesting a Mortgage Extension
If you have reviewed all of your available mortgage loan modification requirements and are still interested in pursuing these programs, your next step should be to contact your lender. The chances are good that your lender will ask for an explanation as to why a mortgage extension is needed.
Providing an accurate and transparent assessment of your current finances and the challenges you face will allow the lender not only to determine whether or not an extension can be granted but also what alternatives may be available that could better suit your needs. In some situations, borrowers may request an extension only to find that other plans of action may be more financially effective. It is in your lender's best interest to help you find a plan that allows you to complete repayment.
Seeking Additional Advice
If you are facing significant problems with your mortgage repayment, you should consider speaking with a financial adviser or your lender as soon as possible. These situations will only increase in scope and severity if you ignore them. Confronting your financial problems promptly will ensure that you can make an effective plan of action that resolves these issues and sets you up on a viable path for the future. Fortunately, you can find valuable consultation services that remain affordable and will not stress your finances beyond a sustainable threshold.
- Extending the term of your mortgage loan can make your monthly payments more affordable. However, you will end up paying more money in interest charges.
Ryan Cockerham is a nationally recognized author specializing in all things innovation, business and creativity. His work has served the business, nonprofit and political community.