One of the most important strategies today for homeowners in financial trouble is to work out with the lender a temporary delay in payments or a period of reduced payments. More and more creditors are realizing that foreclosure is a losing proposition for the lender, and that they are better off keeping the consumer in the home making whatever payments the household can afford. Some forms of forbearance that lenders are increasing likely to accept include:
* Skipping one payment (that is, letting the consumer remain "30 days down");
* Extending the grace period for making late payments;
* Skipping two to six payments for a year or two; or
* Accepting reduced payments for anywhere from one to eighteen months.
It is important to contact the lender early, as soon as the homeowner begins experiencing financial difficulties. Just calling the lender on the telephone is a good way to start. Immediately follow up all phone calls with a letter to the lender confirming what has been discussed. The homeowner should keep a copy of the letter. The homeowner should continue to press the lender for a response to the offer, and not simply sit back awaiting a response.
Negotiate a Permanent Loan Restructuring
Although a temporary forbearance is easier to negotiate, for some older homeowners the financial problem is more long term. To keep the house they will have to have lower mortgage payments not just for a period of months, but perhaps as long as the mortgage has to run. And lenders are beginning to realize that permanently receiving less interest may be a better solution than foreclosing on the home.
Where a home`s likely sale price at foreclosure is less than the mortgage, the lender is usually better off keeping the consumer in the home and receiving lower mortgage payments. Moreover, more and more consumers are utilizing their rights in bankruptcy, and lenders are discovering that they are worse off if the consumer files bankruptcy than if they negotiate a new repayment plan. Consequently, homeowners report success in achieving the following types of negotiated mortgage restructuring:
* Capitalizing delinquent payments on top of the present principal balance, allowing the consumer to repay these delinquent payments slowly over the whole term of the loan;
* Giving the homeowner up to four years to repay, in installments, delinquent amounts, with no interest accruing on these back due amounts;
* Lowering the interest rate for a certain number of years or even for the remaining term of the loan, thus reducing monthly payments without lengthening the term of the mortgage;
* Lengthening the term of the loan, thus reducing monthly payments (but increasing the total interest payments over the term of the loan);
* Substituting some other more valuable property or asset for the home as collateral for the mortgage, thus putting this substitute property at risk of foreclosure, but protecting the home; or
* Some combination of the above forms of loan restructuring, such as allowing back due payments to be paid gradually, lengthening the term of the loan, and lowering interest.
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