As the economic crisis took hold in 2007, words like "foreclosure" and "short sale" became staples in the American lexicon. The housing crisis prompted borrowers to search for ways to make their mortgage payment more manageable. If you are are struggling to stay above water or merely looking for a better and cheaper mortgage deal, options do exist.
Call the bank that holds your mortgage. You can find its contact information on your monthly mortgage statement. Regardless of your situation, this is the place to start. If you are struggling to make your payment, the Federal Trade Commission notes that the sooner you get in touch with your bank, the more options the bank will have for you.
Ask your bank about a payment program if you are experiencing temporary financial difficulty. As the Federal Trade Commission explains, many banks will work out a payment arrangement to get you through a rough patch. Banks often defer payments or reduce them to a workable level until your income stream picks back up.
Request that your bank check to see if you qualify for the federal government's Home Affordable Modification Program (HAMP). Most major banks participate in the program. If you are eligible for a modification, your bank will work to reduce your monthly payment to an amount no greater than 31 percent of your household income. As the Making Home Affordable website (see References) points out, banks initially approve qualified applicants for a three-month HAMP trial. If you make three consecutive, on-time payments, the modification becomes permanent. You'll need to not only prove hardship, but that you have the income to satisfy the modified, reduced payments.
Query your lender about a mortgage refinance. Generally, banks only make this option available to borrowers in good standing who have not defaulted on their home loan. With a refinance, you can get into a new loan with better terms, particularly a lower interest rate. As finance counselor and radio host Dave Ramsey advises, a refinance is typically worth your while if you can get an interest rate reduction of at least 2 percent below your current interest rate. Ramsey factors other costs associated with refinancing, such as closing and appraisal expenses, into his calculation. In 2 percent territory, you're likely to see a reduction in your monthly mortgage payment despite the cost of refinancing.
- Paying more than the minimum on your mortgage in a given month generally does not lower your monthly payment going forward. As Don Taylor of Bank Rate points out, the extra money shortens the life of your loan and reduces the amount of interest you'll pay, but, on conventional mortgages, the payment remains the same.
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