Foreclosures can be very expensive for lenders, so they want to avoid them at all costs. If you have fallen behind on your mortgage, a lender may allow you to add one or more payments to the end of your loan as an alternative to foreclosing the property. There are a variety of ways to do this.
TL;DR (Too Long; Didn't Read)
Some mortgage lenders will allow customers to make a few payments at the end of the loan after granting them a forbearance.
A loan modification can temporarily or permanently change the terms of your original loan. Modifications can vary widely and may include a reduced interest rate, arrears that are financed back into the loan or mortgage payments that are added to the end of your loan. The loan modification may also result in extending the number of years in which you are allowed to pay off the loan, such as changing a 20-year term to a 30-year term. This option may assist borrowers who have suffered a financial setback. You may need to provide your lender with supporting documentation, including tax returns, check stubs and a hardship package.
A forbearance is a temporary agreement that allows you to delay making payments for a specified period of time, such as one to three months. This option may be best if you are experiencing a temporary financial hardship but you expect to recover in a short period of time. The missed payments may be added to the loan balance that you pay at the end of the loan. However, this arrangement may have a negative impact on your credit rating.
Refinancing Your Mortgage
Refinancing your home mortgage can allow you to change the terms of your loan and to extend the loan term. However, you must typically have a substantial amount of equity in your home, and the fees associated with refinancing are usually expensive. FHA loans can be refinanced in a more affordable manner than other types of loans. Borrowers must often be no more than two months behind to still qualify for refinancing.
Your lender is more likely to work with you if you are upfront about your trouble with making the mortgage payment. Lenders can discuss the options available to you based on your particular circumstances. Each lender has its own set of rules and lending practices that will help determine the options the lender is willing to provide. Also, review your loan documents for any established rights in the contract or accelerated payment clauses that may affect your ability to pay off the mortgage. Some loans can be in default because of a single missed payment.
Samantha Kemp is a lawyer for a general practice firm. She has been writing professionally since 2009. Her articles focus on legal issues, personal finance, business and education. Kemp acquired her JD from the University of Arkansas School of Law. She also has degrees in economics and business and teaching.