Mortgage Relief Options Can Help Weather Unexpected Hardship

Mortgage Relief Options Can Help Weather Unexpected Hardship

May 12, 2020
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Mortgage Relief Options Can Help Weather Unexpected Hardship

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When hardship strikes, assistance options are available to help with your monthly housing payments.

Having a mortgage is a big, long-term commitment that many Americans would love the chance to be able to take on. Mortgages usually span multiple decades, and over such a long period, a lot can change with the economy, your employment, and countless other things that can impact your ability to pay your mortgage. When hardship strikes, you should know that you’re not alone.

There is good news for those who are struggling to make their payment: Mortgage Relief is available, and there's often more than one option. Many homeowners qualify for all, or at least some, of the mortgage relief options available – they just don’t always know which relief options are at their disposal.

Everyone's situation is different – maybe you're just short a hundred dollars or so each month, or maybe you've lost half your income and are already a month behind on payments.

Now more than ever, all parties involved – the banks, mortgage lenders, the federal government all understand that many homeowners will find themselves in a place where they can’t pay their mortgage. That’s why many forms of assistance exist. Let’s take a look at some of the best mortgage relief options.

Mortgage Refinancing For Lower Monthly Payments

If you’re not totally in over your head, but the monthly payments on your mortgage are putting you in a tight spot every month, then a mortgage refinance may be the right path for you.

Refinancing a mortgage is essentially replacing your current mortgage with a new one. Ideally a homeowner would do this to take advantage of lower interest rates, or to get cash so they can pay off high-interest debt, or make needed home repairs. Homeowners that only want to accomplish getting lower monthly payments can do so, even if the interest rate goes up a little bit.

A mortgage refinance enables you to change the loan payment terms – how long the loan is drawn out for. If you have 12 years left on your mortgage and still owe $100,000 then you may be able to refinance that $100,000 over a 15-year or 20-year period which would most likely lower your monthly payments.

The tradeoff is that in addition to a potentially higher interest rate, you may end up drawing your mortgage out for many years after it should have originally been paid off.

Mortgage Loan Debt Protection Coverage

Depending on when your mortgage started, and who issued it, your loan may have debt protection – this is almost like an insurance plan for your loan should a life-changing event occur. Debt protection is more commonly associated with mortgages issued before 2008.

The specific terms are up to your lender, but many will provide assistance (or even completely forgive the mortgage) in the event of the death of a spouse or cosigner, job loss, or even an injury that prevents you from working.

This type of protection is not available to every borrower, but you should certainly check with your lender if you’ve had a recent life-changing event.

Mortgage Forbearance / Temporary Mortgage Relief

A mortgage lender, bank, or credit union would much rather work with you to continue to make payments than have to go through the foreclosure process. They also understand that sometimes life can bring the unexpected, and with a little help, those that face hardship can bounce back. For this reason, many lenders offer mortgage forbearance for those that need help with or can’t pay their mortgage. You may also avoid late fees and other penalties along the way.

Homeowners that experience a job loss, suffer from a major illness, or have gone through some kind of an emergency or natural disaster are candidates for forbearance without the need to jump through hoops.

Does Mortgage Forbearance Affect Your Credit?

Probably so, yes. Unless your mortgage lender has specifically agreed not to report this to the credit bureaus, a forbearance will show up in your history. It is much less damaging than a missed payment and it’ll keep you out of foreclosure, so it is usually seen as just a minor blemish.

How Does Mortgage Forbearance Work?

The first step is to reach out to your mortgage lender and simply tell them you’re having trouble paying or that you just outright can’t pay your mortgage. If you qualify, they will work with you to set up terms for your forbearance. These terms can include:

  • How long your forbearance will last
  • What your lower payments will be during this period
  • How you will repay your lender when your forbearance period has ended
  • Whether or not they will report this to the credit bureaus

When Forbearance Ends Do You Still Owe Money?

Yes – once the forbearance period is over, you are still on the hook for the difference in payments. If your mortgage was $1200 per month and your forbearance terms allowed you to pay $800 per month, that is a $400 difference. If your forbearance period lasts 6 months, then you may be required to pay $2400 once your hardship has ended. This may be a lump sum, or they might have you make higher-than-usual mortgage payments to pay it back.

How Do You Qualify For Mortgage Forbearance?

The specifics can and will vary from one lender to the next. Remember, the lender would much rather work with you than risk foreclosure, depending on your situation – so forbearance is based on your specific situation, and the terms are potentially subject to negotiation. Here are some of the things that your lender may require from you:

  • An estimate and probably proof of your monthly income, as well as that of any of the mortgage cosigners.
  • A personal financial statement showing any assets you may have, liquid or otherwise.
  • An approximation of your monthly expenses and who they are paid to.
  • An explanation of your financial hardship (Tip: Find documents that show proof of your current situation)

It's much better to open a dialogue with your lender about forbearance before you miss a payment. Remember, a forbearance is not as bad as a missed or delinquent payment.

The forbearance process is usually meant for short-term hardships. If you can’t pay your mortgage and need a more long-term solution, consider a mortgage loan modification.

Mortgage Loan Modification

A mortgage loan modification will modify the terms of your loan for a long-term period – possibly even potentially for the rest of your loan. A loan modification is different from a mortgage refinance – a refinance replaces your mortgage whereas a modification just alters the terms of your current loan.

Whenever a lender feels that a homeowner is going to get into a situation where they can’t pay their mortgage, they may use a loan modification to lower the interest rate of your mortgage, extend the terms of the loan (which would make the monthly payments significantly lower), or to convert an adjustable rate mortgage (ARM) into a fixed-rate mortgage.

How Do You Qualify For A Loan Modification?

As with forbearance, not everyone will qualify on the sole basis that they’re struggling to pay. With a loan modification a lender will likely want to see evidence of some sort of financial hardship, such as death of a spouse or job loss, and you may need to already be delinquent or pretty close to it.

Does Mortgage Loan Modification Affect Your Credit?

One of the major downsides to a modification is the toll it can take on your credit. A modification on your credit won’t be as bad as a foreclosure would have been, but it can still eat into your chances of getting a loan or credit in the future.

If your modification is temporary, you may need to repay the amount that was modified before you can refinance or purchase a new home in the future. If your modification is permanent, lenders (for any reason, credit card companies to car loans) may want to see 12-24 on-time mortgage payments at the modified amount, lest they decline you or charge you exorbitant interest rates.

Mortgage Relief Options Can Help

It’s very common and that’s the reason many lenders have various programs in place to help you work through difficult times. Other lenders and credit-extending companies also understand that sometimes life gets in the way, and they can work around a ding in your credit history. However, working around a foreclosure or bankruptcy is an entirely different obstacle, so reach out to your lender and ask what your options are before you truly get in above your head.