Most people find themselves in unexpected financial situations where they worry they may not be able to make their mortgage payments on time. Perhaps a medical emergency has arisen, you’ve lost your job, or the interest rate on your home loan has increased beyond your means. It’s important to not panic and take the correct steps to ensure you rectify the situation before it gets worse.
Discuss the Situation with Your Lender
The first reaction to falling behind on your mortgage repayments can be to stick your head in the sand and hope for things to get better soon. Many people avoid contacting their mortgage lender, thinking highlighting the issue might put the spotlight on your finances earlier than required.
In fact, your mortgage lender should be your most useful ally in this case. Mortgage lenders and banks are not in the business of making repossessions – their daily business of making money through the interest rates on loans is much less messy and they’ll often bend over backward to help you make your repayments. They don’t want to be saddled with a pre-owned house and the expense that comes with trying to sell it on the open market while it sits there earning them nothing.
This is true of all non-predatory lenders. If you ignore their bill statements, phone calls, or emails, you ultimately give them no choice but to foreclose or call in the debt. If instead you acknowledge that you have the debt and that you may have trouble making regular payments in the short term, you are showing the lender that you are serious about catching up with the payments.
In this case, most mortgage lenders are able to modify the loan and change the repayment plan to suit your situation better. This can be a permanent change, such as increasing the number of years to pay your mortgage back over, or a temporary change until your financial situation becomes more stable.
Offering to pay something, even if it is a small amount, keeps the wolves from the door and shows the lender that you’re not one of the people who is going to give up on your obligation to repay the debt.
Manage Your Money
To avoid sinking deeper into debt, begin tracking all of the debt you owe and all of the money that comes in and goes out of your household. Knowing exactly how much money you have each month and where it all goes allows you to find ways you can reduce outgoings so that you can repay more of your debt more quickly.
You will probably have multiple debts. The largest debt is not necessarily the debt you should pay back first; you should concentrate on debts that can result in legal action being taken against you. These include mortgages, secured loans, taxes, and utility bills.
After these debts are taken care of monthly, the next thing is to consider the interest rates on each of your debts. A car loan at 7.5% is not such a drain on your finances as a credit card debt at 29.9%, for example. Paying off your high-interest debts first means you will pay less interest overall in the long run.
Short Term Loans
Be wary of taking on more debt to pay off old debt, but it can work to your advantage if you do it correctly. For example, many people take out a car title loan on their vehicle that releases most of the value stored in their car. As the lending company has security on your loan in the form of the car, it is able to offer better interest rates than unsecured personal loans.
If you have an amount of credit card debt accumulating at a high-interest rate, paying it off with the money from a car title loan can leave you with a more manageable repayment. This is especially true if you are becoming delinquent on payments as you will suffer heavy penalties for late payments.
Aside from this type of smart debt consolidation that can actually help, be wary of foreclosure specialists that promise to save your home for a fee. Check with the Better Business Bureau if you are unsure.
Financial hardships hit us all at one time or another, but getting out of a hole just takes a little planning and dedication. Almost anyone can avoid falling behind on their mortgage repayments if they take a practical and clear-eyed view of the situation.