How to Negotiate a Lower Mortgage Payment
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We are living in austere times where many people are finding their mortgage payments sometimes uncomfortable, sometimes impossible.
As a response to the exceptional economic climate, the government has adopted new measures and mortgage lenders are aware that they have to develop approaches to their dealings with borrowers. In all personal finance issues there are specific ways and means to improve difficult situations, re-negotiating your mortgage is no different. |
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Understanding Your Future Mortgage Payment Structure
The be able to make your current mortgage payments manageable, you must first look further down the line. Take a close look at your mortgage to understand what will happen to your payments in the future. There are three basic possibilities;
- 1. Your payments could change at any point (Adjustable Rate Mortgage).
- 2. Your payments may have been fixed for a period but could change after a given date (Hybrid Adjustable Rate Mortgage).
- 3. Your Payments could be fixed for the life of the mortgage payment plan (Fixed Rate Mortgage).
Adjustable and Hybrid Mortgage payments could increase, putting further stress on your finances and on you. To avoid unfortunate surprises, you can consider refinancing to a Fixed Rate Mortgage, but this move can also bring about extra costs. Many Adjustable Rate Mortgages penalize the borrower for refinancing within the first few years of the mortgage, and it can mean paying out thousands of dollars. This means refinancing can be helpful only in certain sets of circumstances, for instance if you plan to keep the property and pay for it over a long period, but not if you are thinking about selling in the near future.
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Prepare to Take Action
Before taking any action, you need to have a good understanding of what your future economic situation is likely to be. This will help you to choose the best option in solving your mortgage problems, and avoid more headaches in the future. It will also prove useful should you be asked to demonstrate that you are making an effort to pay your mortgage.
The following steps will help you to ready yourself for the process:
- 1. Note down your income and expenses. Work out the value of your property minus the amount that you have left to pay.
- 2. Consider what might be at the root of the problem and what you have done to try to solve it. Create a file containing the documents that back up your conclusions.
- 3. Try to predict how the problem is likely to develop, will it be a temporary issue or more long term, could it be permanent even? Don't forget to include the impact of other debts on your ability to meet your payments. You need to make a full and accurate appraisal in order to adopt the best measures for your particular situation.
- 4. Decide what you want to happen. Do you want to keep the property? Will you want to rent it? Start to look at what kind of alternative payment plan would be possible given your personal financial responsibilities and day to day needs.
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Start Acting Early
Once you understand your position, it is a good idea to get on the phone and start to deal with the situation as early as possible. By speaking with your loan servicer soon, you will keep more options open.
Since 2008 many loan servicers have created new alternatives for mortgage holders, so even if you have been turned down in the past, call back and enquire again - your needs may now be better catered for. Be patient when trying to get through, there will be many other people trying to do the same thing. Perseverance is key whenever you want to negotiate new arrangements with any creditor.
When you get through, explain that you need to arrange a new payment agreement. Make it clear that you have assessed your situation and that what you want is to find a sustainable arrangement to ensure that you can continue to pay your mortgage. You want them to see you as a good client, so if you do explain that you are going through a tight spell do not mention the word "bankruptcy". If they think that you could be a risk to them they are less likely to help you.
Ask if you are eligible for the "Hope for Homeowners Program," which was created by Congress to help those at risk of defaulting or foreclosure, by refinancing their mortgages to more affordable loans. If both borrower and lender agree to the conditions, it provides for a new 30-year fixed rate mortgage insured by the Federal Housing Administration.
You can also ask about the Obama administration's new Homeowner Affordability and Stability Plan, which could help to make your monthly payments easier to cope with. Through this program, the new administration intends to provide "refinancing help for four to five million homeowners who receive their mortgages through Fannie Mae or Freddie Mac" and to create "new incentives for lenders to modify the terms of sub-prime loans at risk of default and foreclosure". |
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Catching up When You Have Fallen Behind
If you are struggling to pay the mortgage and are behind with your payments, there are alternatives that can be considered and that your loan servicer may suggest. They each have different effects on your options for keeping your property, on your credit rating and even your tax return, so they need to be looked at carefully.
Reinstatement is a clean and simple way to get on top of things if your inability to make the payments is temporary. It involves the agreement of a payment date for all due payments as well as any charges or penalties by a given date.
If you have missed a small number of payments, you could opt for a Payment Plan. This means that your mortgage lender allows you to pay back what you owe within a certain amount of time, adding a portion of what is due to your regular payments.
Another possible solution if your finances are being affected by a temporary reduction of liquidity, is forbearance. Forbearance means that you and your mortgage lender agree to suspend your payments for a period of time, after which you resume them and pay a lump sum or a series of partial payments until you are up to date with the payments. Remember that this is only a solution if your problem is temporary.
If you believe that your difficulties will be long term, you could consider some form of loan modification. Loan modification can take many forms, from reductions in the interest rate to changes in how long you will be given to pay back the loan, inclusion of missed payments in the remaining debt or even the cancellation of part of the debt. In the event of such a cancellation, you are obliged to report it on your federal tax return, although it can be discounted from your income under the Mortgage Forgiveness Debt Relief Act of 2007. |
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The Radical Approaches
If you don't need to keep the property, and the market allows it, you could consider selling your house. Under the right market conditions it could allow you to pay off your mortgage and settle the situation for cleanly.
If you are unable to satisfy your debts in any of the ways mentioned above, you may need to consider filing for bankruptcy. This is a last resort because it has very far reaching effects on your credit rating, where it will remain for ten years, and can even affect your chance of getting certain jobs.
If you considering bankruptcy as an option and have a regular income, you could file for Chapter 13 Bankruptcy, which can allow you to keep certain property that you have to pay for such as your house or car. In this case the court could approve a repayment plan that allows you to use your future income toward payment of your debts over three to five years, rather than surrender the property. Once you have made all the payments under the plan, you can be 'forgiven' certain debts.
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Key Things to do During the Foreclosure Prevention Process
| Keep notes of all your communications with the servicer, including date and time of contact, the nature of the contact (face-to-face, by phone, email, fax or postal mail), the name of the representative, and the outcome. |
| Follow up any oral requests you make with a letter to the servicer. Send your letter by certified mail, “return receipt requested,” so you can document what the servicer received. Keep copies of your letter and any enclosures. |
| Meet all deadlines the servicer gives you. |
| Stay in your home during the process, since you may not qualify for certain types of assistance if you move out. Renting your home will change it from a primary residence to an investment property. Most likely, it will disqualify you for any additional “workout” assistance from the servicer. If you choose this route, be sure the rental income is enough to help you get and keep your loan current. |
| Source: the Federal Trade Commission website. |
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Getting Support Through the Process
There is no reason for you to go through any part of this process on your own. There are nonprofit organizations out there who specialize in assessing and advising people. They can explain anything you are unsure about and help to organize and prioritize your debt, often for free or for a small fee. |
Your local office of the U.S. Department of Housing and Urban Development or your local housing authority can help you to find a trustworthy counseling agency. You could also get in touch with the Homeownership Preservation Foundation, a nonprofit organization that works with mortgage companies, public institutions, and other organizations to help consumers get loan modifications and avoid foreclosures. |
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Don't Get Scammed
Sadly there are people out there who are willing to take advantage of need, fear and confusion to make a quick buck by pretending to be non profit organizations. Beware of people who ask for large sums of money up front and distrust promises or guarantees of loan reductions.
There are also companies who claim to offer services for people with mortgage difficulties. Many of these so called 'services' are carefully crafted schemes designed to take advantage of people in a vulnerable situation.
What follows is a list of common scams compiled by the Federal Trade Commission, take good care to give anyone offering you such a deal a wide berth.
| The Bad and the Ugly |
| The foreclosure prevention specialist: The “specialist” really is a phony counselor who charges high fees in exchange for making a few phone calls or completing some paperwork that a homeowner could easily do for himself. None of the actions results in saving the home. This scam gives homeowners a false sense of hope, delays them from seeking qualified help, and exposes their personal financial information to a fraudster. |
| Some of these companies even use names with the word HOPE or HOPE NOW in them to confuse borrowers who are looking for assistance from the free 888-995-HOPE hotline. |
| The lease/buy back: Homeowners are deceived into signing over the deed to their home, to a scam artist who tells them they will be able to remain in the house as a renter and eventually buy it back. Usually, the terms of this scheme are so demanding that the buy-back becomes impossible, the homeowner gets evicted, and the “rescuer” walks off with most or all of the equity. |
| The bait-and-switch: Homeowners think they are signing documents to bring the mortgage current. Instead, they are signing over the deed to their home. Homeowners usually don’t know they’ve been scammed until they get an eviction notice. |
| Source: the Federal Trade Commission website |
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To Summuarize
Considering the transcendental effects of a mortgage in our lives, it is very clear that when things start to get rocky the thing to do is to do our homework. You need to combine some basic ground rules with the expertise of the organizations who are out there, to reach the best possible outcome. Remember that there are many other people who are going through similar experiences and that much of the political world is focused on ameliorating the fallout from the current economic events. The Obama administration is making helping mortgage holders in difficulties a priority, take advantage of this and discover what new opportunities will work for you. |
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Grub Street Writing and Translation: Leaving out the parts that people skip
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