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When you get behind on your mortgage, you might think the only answer is foreclosure, but you have options. If you really want to stay in your home, you can talk to the lender about a loan repayment plan. This plan is not something that affects your rate, term, or anything else on your loan. What it does is gives you the chance to make up the payments that you are behind on in a way that you can afford. Every lender is different as is every situation; but in general, the following is how a loan repayment plan works.
Figure out the Deficit
The first step is figuring out how much money you owe on back payments. Let’s say that your mortgage payment is $1,000 per month and you are behind on 3 months’ worth of payments. That means that you owe $3,000. This money is in addition to your current monthly mortgage payments as the idea is to stay current on your loan. Once the deficit has been figured out, the repayment plan can be created.
What can you Afford?
The deficit of $3,000 from above will need to be spread out over a period of several months in order for you to pay it off. Because it is in addition to your $1,000 mortgage payment that you must make each month, you need to figure out what you can afford to pay in addition to that $1,000. If you want to get the delinquency paid off in say 6 months, you would have to pay an extra $500 per month on top of the $1,000 you are obliged to pay. The exact amount that you pay and the length of time that it takes to get your loan paid back is between you and your lender. Some lenders are willing to take a longer amount of time to get their money back while some want it taken care of in a matter of a few months.
Creating the Agreement
Once you know what you can afford and what the lender will approve, an agreement is drawn up and your new monthly mortgage payments will include the money that is to go towards your delinquent payments. This plan does not make the term on your loan longer or typically cost you any fees. The main idea is that the lender is able to get his money and not have to go through the foreclosure process, which is timely and costly for banks.
Of course, not every bank will allow a repayment agreement. It depends on your credit history; the history with the bank itself; and the length of time you are delinquent. The fewer payments behind you are, the more likely the bank is to approve your repayment plan. This does not mean that if you are five or six months behind that you cannot get a plan, but it might be more difficult. Typically after six months, banks will not allow for a repayment plan as most people are unable to make up that many payments and still stay current on their mortgage payments.
If you are behind on your mortgage, the sooner you talk to your lender, the better.