A Guide to Your Mortgage Relief Options

A job loss or an economic recession can heavily impact your monthly mortgage payments. If you need assistance on paying your monthly mortgage, here are some mortgage relief options you can consider to prevent a foreclosure.

Modification

Loan modifications can involve various changes to the original loan terms, including:

1. Interest Rate Reduction: The lender may agree to lower the interest rate on the loan, resulting in lower monthly payments for the borrower.
2. Term Extension: The lender may extend the term of the loan, spreading out the remaining balance over a longer period of time. This can also reduce the monthly payments for the borrower.
3. Principal Forbearance or Reduction: In some cases, the lender may agree to temporarily suspend or reduce the principal balance of the loan. This can provide immediate relief for the borrower by lowering the overall amount owed.
4. Capitalization of Arrears: If the borrower has fallen behind on their payments, the lender may allow the past due amount to be added to the principal balance of the loan, effectively spreading out the missed payments over the remaining term of the loan.
5. Other Modifications: Depending on the circumstances, other modifications may be considered, such as changing the loan type (e.g., from an adjustable-rate mortgage to a fixed-rate mortgage), waiving late fees or penalties, or adjusting the payment schedule.

Loan modifications are typically negotiated between the borrower and the lender, often with the assistance of a housing counselor or attorney. The borrower is usually required to provide documentation of their financial hardship and demonstrate their ability to make the modified payments. Once the modification is agreed upon, the new terms are documented in a written agreement that is signed by both parties.

It’s important to note that loan modifications are not guaranteed, and lenders are not obligated to grant them. However, many lenders are willing to work with borrowers who are facing financial difficulties in order to avoid default and foreclosure, as it is often in the best interest of both parties to find a mutually beneficial solution.

Deferment

A loan deferment is a temporary postponement of loan payments granted by a lender to a borrower. During a deferment period, the borrower is not required to make regular payments on the loan, and interest may or may not continue to accrue depending on the terms of the deferment agreement.

Loan deferments are typically granted in situations where the borrower is facing financial hardship or experiencing a temporary inability to make loan payments. Common reasons for requesting a deferment include unemployment, medical emergencies, or other unexpected financial challenges.

During a deferment period, the borrower’s loan agreement remains in effect, but the repayment schedule is temporarily suspended. This means that the borrower does not need to make payments on the loan during the deferment period, and any missed payments are typically added to the end of the loan term.

It’s important to note that loan deferments are not automatic and must be requested from the lender. Borrowers may be required to provide documentation of their financial hardship or demonstrate their eligibility for deferment. Additionally, lenders may have specific criteria that must be met in order to qualify for a deferment, such as being current on loan payments or having a certain type of loan.

While loan deferments can provide temporary relief for borrowers facing financial difficulties, it’s important to understand that they are not a long-term solution and may not be available for all types of loans or borrowers. Borrowers should carefully consider the terms and implications of a deferment before requesting one, as interest may continue to accrue during the deferment period, potentially increasing the total cost of the loan over time.

Repayment Plan

A mortgage loan repayment plan is an arrangement between a borrower and a lender to help the borrower catch up on missed mortgage payments and bring their loan current. It is typically utilized when a borrower has experienced a temporary financial setback or hardship that has caused them to fall behind on their mortgage payments.

The repayment plan outlines a schedule for the borrower to make additional payments on top of their regular monthly mortgage payment in order to gradually repay the missed payments. These additional payments are spread out over a specified period of time and are typically added to the borrower’s regular monthly mortgage payment.

Here’s how a mortgage loan repayment plan typically works:

1. Assessment of Financial Situation: The borrower contacts their lender to explain their financial hardship and request a repayment plan. The lender will assess the borrower’s financial situation, including their income, expenses, and the reason for the missed payments.
2. Development of Repayment Schedule: Based on the borrower’s financial situation, the lender will develop a repayment schedule that outlines the amount of the additional payments, the duration of the repayment plan, and any other terms or conditions.
3. Agreement and Implementation: Once the repayment plan is agreed upon by both parties, it is documented in writing, typically as an amendment to the original loan agreement. The borrower agrees to make the additional payments according to the schedule outlined in the repayment plan.
4. Adherence to the Plan: The borrower must adhere to the terms of the repayment plan by making the agreed-upon additional payments in addition to their regular monthly mortgage payment. It’s important for the borrower to make these payments on time and in full to avoid further financial consequences.
5. Monitoring and Adjustment: Throughout the repayment plan period, the lender may monitor the borrower’s progress and make adjustments to the plan if necessary. If the borrower experiences further financial difficulties or is unable to meet the terms of the repayment plan, they should communicate with their lender to discuss possible alternatives.

A mortgage loan repayment plan provides borrowers with a structured way to catch up on missed payments and avoid foreclosure. It allows borrowers to gradually repay their arrears while maintaining ownership of their home. However, borrowers should be aware that repayment plans may not be suitable for all situations, and it’s important to carefully consider the terms and implications before entering into a repayment plan with their lender.

Long Term Vs. Short Term Hardship Description

Long-term and short-term hardships refer to the duration and severity of the financial challenges a borrower may be facing. Understanding the difference between the two can help lenders and borrowers determine the most appropriate solutions for managing loans and avoiding default.

Short-Term Hardship:

• Duration: Short-term hardship typically lasts for a brief period, such as a few weeks to a few months.
• Causes: Common causes of short-term hardship include temporary job loss, medical emergencies, unexpected expenses, or other sudden and short-lived financial setbacks.
• Impact: While short-term hardship can cause temporary disruptions in a borrower’s ability to make payments, it is generally expected that the borrower will be able to recover financially within a relatively short period.
• Solutions: Solutions for short-term hardship often include temporary measures such as forbearance, loan deferment, or skip-a-pay options. These allow the borrower to temporarily suspend or reduce payments until their financial situation stabilizes.

Long-Term Hardship:

• Duration: Long-term hardship refers to financial challenges that persist over an extended period, typically several months or even years.
• Causes: Causes of long-term hardship may include prolonged unemployment, chronic medical conditions, permanent reductions in income, or other long-standing financial difficulties.
• Impact: Long-term hardship can have a more significant and sustained impact on a borrower’s ability to meet their financial obligations. Without intervention, long-term hardship may lead to defaults and foreclosures.
• Solutions: Solutions for long-term hardship may involve more permanent changes to loan terms, such as loan modifications. This could include reducing the interest rate, extending the loan term, or restructuring the loan to make payments more manageable. Lenders may also offer financial counseling or assistance programs to help borrowers navigate long-term financial challenges.

Other Resources

Below are some additional resources to help you navigate through this financial hardship.

BALANCE offers Early Delinquency Intervention education. You can also call BALANCE direct at 1-888-823-7555.

The U.S. Department of Housing and Urban Development has a wealth of resources available to help homeowners. You can contact them at the number below or follow the link to the HUD Website.

U.S. Department of Housing and Urban Development (HUD)
800.569.4287 or www.hud.gov