Help with Mortgage and Bill Payments

BILL'S ANSWER

Thankfully, there is help available to consumers like you who are struggling to meet their mortgage and other bill payments. I can think of several options that may assist you, but which option is best for your situation depends greatly on your income, the amount of equity in your home, and your credit rating, among other factors.

Refinancing your mortgage

First, you may be able to refinance your current home mortgage. A refinance loan is essentially a new mortgage on your home where the refinance lender pays off your old mortgage company and becomes your new mortgage holder. Thus, a refinance loan would bring your mortgage current and allow you to start from scratch with new payments to a new lender. Depending on the interest rate being charged on your current mortgage, a refinance loan may allow you to obtain a lower interest rate and lower your monthly mortgage payments. Whether or not you can qualify for a refinance loan, or at least a loan that will save you money, depends on your credit score and how much equity you have in the home. Refinance lenders base the interest rates they offer on the potential borrower's credit score and the loan-to-value ratio (LTV) of the potential loan. Your loan to value ratio compares the amount of the loan you need to the value of your home. Ideally, your LTV should be 80% or less, meaning the refinance loan equals 80% or less of the market value of the home. However, depending on your credit rating, you may be able to find refinance loans at a higher LTV, though you can expect to pay a higher interest rate, as lenders are taking more risk lending at higher loan to value ratios.

To learn more about refinance loans, I encourage you to watch a video on Mortgage Refinancing. If you enter your contact information in the Bills.com Savings Center at the top of the page, we can have several pre-screened mortgage brokers contact you to discuss the refinance options available to you.

A refinance loan will require you to make your mortgage payments going forward if your wish to keep your home. If you are not confident that you will be able to maintain your future mortgage payments, you may want to consider selling your home. Keep in mind that a refinance loan may lower your mortgage payments, so you should definitely look into a refinance before you decide to sell. However, if you truly cannot afford the mortgage payments, selling the home should allow you to avoid foreclosure and to cash out whatever equity you have built in the home since you purchased it, which you would likely loose in foreclosure. While I understand that no one wants to admit that they cannot afford their mortgage payments, if you honestly believe that you are in over your head with your mortgage, selling your home should allow you to avoid the painful and costly foreclosure process.

You should contact several potential lenders to discuss the loan terms they can offer you on a refinance loan. After speaking with several lenders, you should be able to determine whether or not a refinance loan is a financially viable option for you. In case refinancing does not work out you can try these other alternatives:

A Repayment Plan

- If your account has become past due, but you can now make payments, the lender might agree to let you catch up by adding a portion of the past due amount to a certain number of monthly payments until your account is current.

Mortgage Modification

- If you can make your regular payment now, but cannot catch-up the past due amount, the lender might agree to modify your mortgage. One solution is to add the past due amount into your existing loan, financing it over a long term. Modification might also be possible if you no longer have the ability to make payments at the former level. The lender can modify your mortgage to extend the length of your loan (or take other steps to reduce your payments).

Deed in Lieu of Foreclosure

- This is when the lender allows you to give back your property and forgives the debt. It does have a negative impact on your credit record, but not as much as a foreclosure. The lender might require that you attempt to sell the house for a specific time period before agreeing to this option, and it might not be possible if there are other liens against the home.

As a response to the recent downturn in the U.S. economy and housing market, the federal government has been pressuring lenders to work with consumers who are struggling with their mortgage payments, and is working on plans to provide incentives to those lenders who are willing to offer concessions to borrowers. I strongly encourage you to contact your lender to discuss what programs the lender offers to write down borrowers’ mortgage balances to make the principal debt more in line with the actual value of the home. While not all lenders are offering this type of assistance to borrowers, many are offering reduced interest, deferred rate adjustment, etc., and it certainly does not hurt to call and ask what options are available. The federal government has an official website that addresses mortgage refinancing and modification programs.

Debt consolidation options

As for the credit card, medical and other debt, there are several options available. Since debt consolidation comes in many forms, it is important that each consumer reflects on what their needs and concerns and financial situation is before signing up for a debt consolidation program. The four primary concerns for most consumers are: i) monthly payment, ii) time to debt freedom, iii) total cost, and iv) the credit rating impact of the consolidation program. Be sure to evaluate each program, relative to your prioritization of these factors.

Credit Counseling

Credit counseling, or signing up for a debt management plan, is a very common form of debt consolidation. There are many companies offering credit counseling, which is essentially a way to make one payment directly to the credit counseling agency, which then distributes that payment to your creditors. Most times, a credit counseling agency will be able to lower your monthly payments by getting interest rate concessions from your lenders or creditors. It is important to understand that in a credit counseling program, you are still repaying 100% of your debts – but with lower monthly payments. On average, most credit counseling programs take around five years. While most credit counseling programs do not impact your FICO score, being enrolled in a credit counseling debt management plan DOES show up on your credit report… and, unfortunately, many lenders look at enrollment in credit counseling akin to filing for Chapter 13 Bankruptcy – or using a third party to re-organize your debts.

Debt Settlement

Debt settlement, also called debt negotiation, is a form of debt consolidation that cuts your total debt, sometimes over 50%, with lower monthly payments. Debt settlement programs typically run around three years. It is important to keep in mind, however, that during the life of your debt settlement program, you are NOT paying your creditors. This means that a debt settlement solution will negatively impact your credit rating. Your credit rating will not be good, at a minimum, for the term of your debt settlement program. However, debt settlement is usually the fastest and cheapest way to debt freedom, with a low monthly payment, while avoiding Chapter 7 Bankruptcy. The trade-off here is a negative credit rating versus saving money.

Debt Consolidation Loan

Many people think first of a debt consolidation loan when seeking debt consolidation. This option typically means a second home loan (or home equity line of credit) or refinancing your primary mortgage. In a debt consolidation loan, you exchange one loan for another. The most frequent form is taking out a mortgage loan, which carries a lower interest rate and is tax deductible, to pay off high interest rate credit card debt. It is important to be aware that shifting unsecured debt to secured debt can create a volatile situation, if there is ever a chance that you cannot afford the new mortgage payment you are now putting yourself at risk of foreclosure! In the case of a debt consolidation loan, most mortgages are 30 year loan, which means that the total cost and the time to debt freedom could be very high… but the monthly payment will be lower than other options and there is no credit rating impact.

Bankruptcy

Bankruptcy is another option for people facing severe financial hardship. You may be able to work out a plan with the lender to keep you home and file for bankruptcy on your other, unsecured debts. However, I am not an attorney and do now know all of the details of your financial situation, so I strongly encourage you to consult with an experienced attorney in your state who can review your overall financial situation and help you make an informed decision about the best way to proceed.

I hope that the options I mentioned above will assist you in resolving your financial troubles. I wish you the best of luck, and hope that the information I have provided helps you Find. Learn. Save.

Best,

Bill

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