What To Do If You Miss A Mortgage Payment
Tough financial times can happen to anyone, anytime. Even during financially difficult times, one of the last things you want to do is miss a mortgage payment. While not the end of the world, especially if you quickly become current on your payments, missing mortgage payments can have long-term impacts on your credit, homeownership, and your overall financial health. Before you miss a mortgage payment, here are some things to keep in mind.
Loan ModificationA mortgage loan modification is an arrangement that a borrower makes with a lender to reduce the borrower’s mortgage obligations during a time of financial difficulty. Loan modification is intended to make it easier for the borrower to keep up with their mortgage payments and avoid going into foreclosure. Under a mortgage loan modification, the terms of your mortgage are changed to make the loan more affordable. Some of these changes may include: reduction in the borrower’s mortgage rate; the past-due amounts may be paid off in installments or deferred until the end of the loan; the loan term may be extended, reducing the amount of principle that must be paid every month; or, the lender may write off some of the loan principle, reducing the total amount owed on the loan.
In times past, lenders would only provide loan modifications to people who were significantly behind on their mortgage payments. This thinking, however, encouraged borrowers who were struggling financially, but still current on their mortgage, to deliberately miss mortgage payments to qualify for loan modification. Most lenders now understand that putting borrowers in that situation does not really help anyone involved, and, now, extend loan modifications to non-delinquent borrowers.
Risk of ForeclosureForeclosure is a lender’s right to repossess or take ownership of a borrower’s home when the borrower defaults on the mortgage loan. Depending on where you live, foreclosures may be judicial or non-judicial. Judicial foreclosures must progress through the court system, while non-judicial foreclosures require little to no involvement from the court. If you are underwater on your home—meaning you owe more on your loan than your house is worth—and your mortgage payments are too high for you to manage, you may choose to allow a foreclosure.
Generally, if you fall behind by ninety days on your mortgage payment, your lender considers you in default on the loan. At this point, your lender can begin foreclosure proceedings against you. That said, most lenders would rather work with the borrower to get them current on their mortgage, but if that is not an option, there are a few other steps you can take to avoid the loss of your home. One step is filing bankruptcy, which generally affords the homeowner some protection and ability to remain the home until the bankruptcy is resolved. Another option is entering into a forbearance agreement. With a forbearance agreement, the borrower accepts lower payments for a period of time and then pays the late payments and fees after the reduced payment period expires.
Credit DamageMissing mortgage payments will substantially affect your credit score, and if a foreclosure ultimately results, that will damage your credit score even further, impacting your ability to obtain credit in the future. This can adversely affect a borrower in a variety of ways because credit history and credit scores are factored into the ability to obtain credit (including mortgages), the rates at which credit is offered (including mortgage rates), insurance premiums, auto insurance premiums, home refinances, and more. Your payment history is a key part of your credit score, so if you fall behind on your mortgage, it can have a significant impact on your financial health, including that ability to secure new financing for future purchases.
Contact Your Lender and Seek HelpIf you expect you will be unable to make a mortgage payment on time and have no alternatives other than to miss the payment, contact your lender as soon as possible and let them know your situation. If a resolution both parties can live with cannot be reached, seek legal advice on how to stay current with your mortgage payments and/or avoid foreclosure. Foreclosure laws are complex and an attorney can figure out how to help you keep your home by negotiating with your lenders, selling your home (via short sale or otherwise), or defending a foreclosure. Find an experienced attorney by quickly posting a short summary of your legal needs on Legal Services Link, and let the perfect attorney come to you!
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