Any homeowner who has been defaulting on his monthly mortgage installments know very well the drastic impact of a foreclosure. A mortgage is a secured loan that is given to the borrowers in lieu of the property kept as collateral to the loan. The interest rates on the home mortgage loan remain low as the lenders have the opportunity to foreclose or repossess your home in the event of a prolonged default. Foreclosure will make you homeless and will also take a toll on your credit standing. Neither will you be able to qualify for yet another mortgage loan in the near future nor will you be able to retain your present homeownership rights. There are foreclosure alternatives that you can take in order to repay your home loan on time and avert the risk of losing your home to a foreclosure. Here are some of them in case you’re not much aware of them.
A mortgage refinance – A new loan can revise your repayment schedule
As the mortgage rates are at their record low levels, this is perhaps the best time to refinance your home loan if you’re not being able to keep up with the payments. Refinancing involves a process of taking out a new loan with favorable rates and terms and conditions. The idea behind refinancing is to take the proceeds of the new loan and pay back the original lender and then start repaying your new loan in small and affordable monthly payments. You have to shop around and check the new rates that are being offered and it goes without mentioning that you require a good credit score, the exact down payment and a low DTI ratio so as to qualify for the new loan.
While comparing the rates on the new loan, you require comparing the rates, the monthly payments and the closing costs of the loan and then seal the deal with the best lender. The only problem with refinancing is that you have to go through the entire process of taking out a new loan yet again in order to avoid a foreclosure. If you want to avoid this, check out the other option
Mortgage loan modification – Modifying the terms of your present loan
If you don’t want to go through the hassles of taking out a new mortgage loan yet again and you want to avoid foreclosure, you can also opt for mortgage loan modification. For this, you require negotiating with your lender and telling him the hardship that you’re going through and that is keeping you from making the monthly payments on time. Draft a loan modification hardship letter so that you can formally let the lender know about your issues.
The lender will be able to change or lower the interest rates on the current mortgage loan, extend the term of the loan in order to lower the monthly payments and also change the kind of the loan as per your request. You can change the loan from an ARM to a fixed rate mortgage through mortgage loan modification.
So, avoiding foreclosure is pretty tough if you don’t have a financial plan. Keep saving money to put aside money for paying your mortgage lender and if you still can’t make ends meet, choose any of the above mentioned 2 options to avoid an imminent foreclosure.
About the author:
Rikk is a Community Member of mortgagefit.com and has been contributing his suggestions to the Community since 2011. He has also made notable contributions through various articles written on different subjects related to the mortgage industry.