What to do when you can’t pay your mortgage
Unexpected financial challenges happen, and sometimes, they can affect your ability to pay your mortgage. The good thing is that there are options to help you get through tough times.
Buying a house is one of the most important decisions you’ll ever make. It’s exciting, overwhelming and, often times, life changing. But things don’t always go as planned. Unexpected challenges come up, and you may find yourself at risk of missing a mortgage payment or two.
Luckily, you’re not the first person to struggle with your mortgage, and lenders are well aware of the possibility of this happening. Just take the year 2020, for example: more than 26% of Americans applied to some sort of mortgage deferral plan, due to the financial impact of COVID-19.
If you think you might miss your next payment or are already behind on your mortgage, there are some steps you can take to help you cope until you build your finances back up.
What happens if you miss a mortgage payment?
Your lender will contact you when you miss a mortgage payment. You’ll likely be given a 15-day grace period in which you can catch up on your mortgage. You may also be charged a late payment fee, and your lender may report you to the credit bureau, which will affect your credit score.
But what if you miss more than one payment?
Missing multiple mortgage payments puts you in default because you’ll have violated the terms of your mortgage contract. Once your mortgage is in default, you’ll usually have up to 120 days to pay the amount you owe until your lender starts the foreclosure process.
A mortgage foreclosure is when your lender takes ownership of the house from you and sells it to recover some or all of the amount you owe. Keep in mind that foreclosure timelines vary from one lender to another, and from one state to another.
A foreclosure on your home can also cause serious damage to your credit score for years to come, but there are ways to help you improve it.
What are your options when you can’t pay your mortgage?
The first step to avoiding a foreclosure is to be open about your financial situation with your lender, so make sure to contact them as soon as you realize you might miss a mortgage payment. Here are some options you can discuss:
1. Forbearance plan
A mortgage forbearance is an agreement you make with your lender to reduce or pause your mortgage payments for a certain period of time – usually up to 12 months. During the forbearance period, your lender isn’t allowed to initiate a foreclosure on your property.
Forbearance is a good option if your income is reduced temporarily; for example, you’re on an unpaid injury leave for a few months but expect to be back at work shortly, or you’ve been placed on temporary layoff due to COVID-19 and will return to work when demand picks up again.
If your income has been impacted by COVID-19 and you’re already in your forbearance period, you may be eligible to extend your forbearance.
2. Loan modification
Another option to help you through a financial hardship is modifying your mortgage. This may involve reducing your mortgage rate or extending the time you have to repay, or a combination of the two.
A loan modification is generally a long-term change that will make your mortgage more affordable, whereas mortgage forbearance is a temporary, short-term solution. You can talk to your lender or a mortgage modification lawyer to help you decide which option suits you better.
3. Mortgage repayment plan
If you’re a few months behind on your mortgage and don’t want a loan modification, you can try a repayment plan. Instead of repaying the amount you owe in one large lump sum, you can spread it out over several months on top of your regular monthly payment.
For example, if you’re behind on $3,000 in total, your lender can allow you to pay an extra $350 on top of your $1,100 regular monthly payment. This means you’ll be paying $1,450 every month for the next 8 months. Once you’re caught up on your mortgage, your monthly payment will go back to normal.
A mortgage repayment plan is a good option if you’re facing short-term financial hardship and will be able to catch up on your mortgage in the near future.
The bottom line
There may be times where you’re unable to pay your mortgage; however, there are options that you can discuss with your lender to help you get through tough times. Be sure to always keep an open line of communication with your lender to figure out a plan that works for you until you can get back on your feet.
If you’re having difficulties making your mortgage payment, BMO’s Loss Mitigation Group may be able to offer alternative options to help. You can contact us at 1-855-290-4760.
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