What Happens if You Stop Paying Your Mortgage?
Paying back your mortgage in a timely manner is essential, or else you could end up on the road to foreclosure — i.e., losing your house. Missed or late mortgage payments will also impact your credit score. Homeowners must learn about mortgage payments to ensure long-term financial stability.
First some terminology:
The term mortgage arrears refers to any mortgage payments you may have missed or might miss in the future. These payments can accumulate to amounts you might not be able to pay, putting your financial stability at risk. The mortgage arrears can also result in higher interest rates on loans and credit cards, putting undue stress on your family’s lifestyle.
How a Missed Payment Affects Your Credit Score
Mortgage lenders report all mortgage payments that are over 30 days late to the credit bureaus. A late or missed mortgage payment can drop your credit score between 50 and 120 points, causing significant damage. A credit score drop of that magnitude can affect both your interest rates and ability to borrow. Credit card companies can check your credit scores and raise your interest rates at any time, based on lower credit scores. Getting a car loan can become quite expensive. Your chances for future employment can also be affected by lower credit scores.
What to do if You Need Help Making Payments
Here are some options that might be available if you need help making mortgage payments.
Refinancing can replace your existing mortgage loan with a new mortgage loan that includes additional debt obligation. It is a way to fulfill payments and get an extension on your loan. Keep in mind please that refinancing, most likely, will have transaction costs, and the new mortgage will come with different terms and a different interest rate.
Forbearance is the process in which a lender temporarily pauses monthly payments or lowers the monthly payment amount to help the borrower. However, forbearance may increase the duration of the mortgage loan repayment as well as the total interest paid.
Loan modifications are changes to the loan agreement to assist borrowers facing loan repayment issues. It is a way of updating or changing the original loan terms.
You will need to contact and work with your mortgage lending institution to determine which options are available to you and which one might be the best.
Missing your mortgage payments can severely hurt your finances and impact many aspects of your life. If you realize that making mortgage payments in a timely manner might become difficult, reach out to your lender right away to discuss available payment options and how they will affect your credit report and score. This way you can have some time to consider your situation and make an informed decision. Do not agree to any of the above solutions until you develop a thorough understanding of each. Remember that your mortgage company does not want to foreclose on your home – they will work with you.
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I have been in the mortgage industry since 1997 and I understand the anxiety that comes with making the most expensive investment of a lifetime. My objective is to be your advisor, to educate you and to make the mortgage loan transaction as transparent and as stress-free as possible. I enjoy establishing personal connections and work mostly by referral. I thoroughly explain the process and available options, and guide my clients to make choices that best fit their needs and financial goals. Once the underwriting begins I communicate regularly and keep my clients apprised of the loan status from the beginning through the end. My relationship with clients does not end at the closing table. You are my client for life and I am always available to answer your questions and provide you with guidance.