What To Do If You Cannot Pay Your Mortgage?

Underpayments, Deliberate and Accidental

Looking at a mortgage agreement – and specifically the payment schedule that is involved in one – is often enough to put even the calmest of individuals into something of a panic. When you stop and think about it, the idea that you are going to pay x amount every month, three hundred times over the course of 25 years seems astonishing. How many of us were doing the same thing twenty-five years ago that we are today? Some of us were not even born. And by the time twenty five years are up, what age will we be? Can we realistically imagine that for the next twenty five years we will be doing the same thing, living in the same place, paying to the same mortgage?

Of course, in many cases we will not be paying the same mortgage. Many individuals and families move house semi-regularly for work reasons, to emigrate or to be closer to extended family. Whatever the reason for moving, this generally results in selling up the current home, paying off the mortgage on it in full, and taking out a new mortgage on a new home elsewhere. For those of us who stick with the same house and the 300-month plan, however, the situation can certainly seem quite daunting. How, one asks oneself, can I possibly keep to an arrangement that goes on for so long? This is why mortgage payments are calculated to generally be set at a level which the customer can comfortably manage. Even if they have a few months of financial stricture, normally savings or help from one’s family can keep things ticking over.

For some people, however, it becomes a case of simply not being able to maintain the payments in the short term. Families will help up to a point, but cash and goodwill are only ever in plentiful supply when they do not have to be frequently relied upon. In such cases, it is often possible to make an underpayment to your mortgage – at least as long as you tell your lender that you are going to do it. Getting in contact with your mortgage lender when it appears more likely than not that you will be unable to meet the agreed monthly payment means that they can put arrangements in place to collect the reduced monthly amount. For a period of a few months, this can make a big difference.

Underpaying a mortgage payment either accidentally or carelessly without regard for the consequences, however, brings different challenges to the table. In the case of an non-agreed underpayment, you will incur a fee on the mortgage which will increase the balance and make for a tougher time paying things off. It will also adversely affect your credit score and lead to the lender treating you less sympathetically. If you cannot make the payment to your mortgage, then let your lender know. If you can, then make the payment – your home is a priority, and keeping up payments on it a necessity.

Should You Take Out A Second Mortgage?

Second Mortgages

There will no doubt be a lot of people who, on hearing of the idea of a second mortgage, will ask rhetorically “With all the problems that a first mortgage seems to create, who on earth would wish to take out a second?". And while the question is understandable, the fact is that a number of people need to take out a second mortgage, while others who know that they can make the payments will take out a second mortgage to aid their cash flow for a large scale purchase for which their first mortgage and their deposit do not quite make up enough capital. The second mortgage should not be a first resort, but an option in the background when other options are frustrated.

A second mortgage is a common solution when a borrower has found the house of their dreams, and with the financing they have so far managed to secure they are unable to meet the asking price. Taking out a second mortgage – for a smaller amount than the first, naturally – may be the best option. The second mortgage is not, however, usually taken out so soon after the first, not least because the first mortgage in such a case is normally taken for the fullest amount the borrower can get. A second mortgage is frequently used in order to raise the money for repairs on an existing property or for some other necessary expense. They are usually given at a higher interest rate than the first mortgage, and begin to be paid off only once the first mortgage has been cleared in full.

For many of the above reasons, a second mortgage is something of a last resort in times of either dire need or acute want. If the property you are hoping to secure has immense resale potential and simply requires that last bit of financing to make it yours, then there is clear reason to look for the second mortgage. This should only be done, however, if you have exhausted other options, principally going to the lender who gave you the first mortgage and asking them if they can increase the amount of the loan. In doing this, you keep the loan at the original rate of interest and maintain the term of the loan. It may well mean paying off more per month, but there are points of negotiation.

Similar to the above, yet marginally different, is the refinancing of your mortgage. By extending the term of your first mortgage you can free up more cash for whatever you need, and maintain monthly payments at a reasonable level. You may also be able to use equity in your existing home. If you have owed the home for a significant period of time, especially if you have made improvements to it, then there may have been an increase in the value of the property, allowing you to place this equity into your first mortgage. It will increase the term of the loan and you will need to ensure that the interest rate is the same before proceeding. However, as compared to a second loan, it will usually be a better idea.

What is Refinancing a Mortgage?

Refinancing Your Mortgage

Often, we will all find ourselves daydreaming of something we would like to do or like to own, and immediately the part of our brain that dictates realism will snap shut on the daydream and remind us that we simply do not have the money to spend on indulging our idle fantasies. While there is every need to maintain a realistic outlook on life, it should not be at the expense of our dreams, and if the opportunity arises to enjoy ourselves in a way that will not bankrupt us, then sometimes we owe it to ourselves to at least consider it. However this does not change the fact that money is not always so easy to come by. One solution that a lot of people use is a refinancing option on their mortgage.

By refinancing your mortgage what you are effectively doing is extending the term of the arrangement in return for extra cash. This is something that a lot of people do for practical reasons like renovating their existing house. Others will extend the term of their loan in order to lower the repayments and enable them to remain in a house where they are finding the mortgage payments hard to maintain. Either way, when you refinance a mortgage you are allowing yourself financial breathing space in the short-to-medium term and accepting a longer time will be spent paying off debts. If you are happy with the fact that you will have less time mortgage-free once the loan is fully paid off, then refinancing can open a lot of doors for you.

One reason why refinancing is so popular is that it is given at the same interest rate as most mortgages. If a mortgage holder also has credit cards or loans with a higher rate of interest, they can use the refinancing to pay off the higher interest credit, allowing themselves as a result to save a great deal of money on repayment. In consultation with your lender – or another lender altogether – you can negotiate a solution to most situations, one which will allow you to feel as though your future can be free of major financial worry. It is, nonetheless, worth paying attention to the fact that none of us can infallibly predict the future, and if you are to refinance it is a good idea to look at making the term as short as possible while still retaining some element of manageability in the repayments.

Whatever your reason for refinancing, it is certainly one of the more reliable and sensible methods of raising quick capital, and as long as you have a good payment history on your mortgage you should have very little difficulty securing a satisfactory refinancing deal. Ask yourself whether the refinancing deal gives you enough freedom to be worth it, and whether – once the money has been put to use – whether you will be able to live comfortably with the repayments. If the answer to both questions is yes, then refinancing can work for you.

What Moves Mortgage Rates?

Mortgage Rates – What Drives Them?

One of the most frequently used words in the mortgage business is “rates”. Actually, to be entirely fair, it is one of the most frequently used words in the mortgage advertisement business – in no small part because the word “interest” is known to terrify a large number of people, even those who do not know why it does. Interest rates are one of the financial indicators that draw quick and decisive reactions from financial experts presenting specialised programs about money which always seem to be on when you are stuck in front of the television. It may be hard to pay attention, but it is worth it – you could just save yourself a lot of money.

When interest rates are high, it is a sign that the economy is in one of its periodic “boom” phases, and the government and banks are placing more interest on transactions essentially in order to discourage excessive and overly-optimistic consumer behaviour. Unsurprisingly, then, when interest rates are low it tends to be a sign of just the opposite. The economy is in poor shape, the banks are reluctant to lend and businesses are struggling to keep their heads above water.

While these periods are traditionally poor for business and considered to be bad financial times, they can be advantageous periods for people with borrowing power, who will find that the lower interest rates increase the range of properties which they can buy. Governments encourage people to spend in these times as they feel it stimulates the economy, but only those customers who have built up good credit scores over the years need apply – bad credit ratings mean limited access to credit, and financial recession means the same. Limiting access to credit this much more or less guarantees that only those with the top credit ratings are entitled to expect a mortgage.

This balancing act by the banks is one of the more interesting elements of the lending business. On the one hand they have deals with low interest rates, which any borrower would covet at any time. On the other hand, they are unwilling to give mortgage deals to any customer who does not have a positive credit rating. This is a situation which, if allowed to persist, would mean a lot fewer homeowners in any society, and would have grave implications for the economy. The typical upshot of this is that governments will step in to inject some capital into the banks and persuade them to lend to consumers. Compared with times gone past when banks were occasionally too ready to lend even to high-risk customers, this situation is one that offers different challenges.

One situation that has arisen in the past, and which banks are keen to prevent from happening again, is the sub-prime mortgage crisis. In that crisis, people who had little or no credit rating were given mortgages anyway, with high interest rates to reflect their high level of risk. Unsurprisingly this led to a lot of people defaulting on their mortgages, and partially triggered the worst financial crisis this world has seen in over sixty years – a crisis we are still dealing with, so it remains to be seen what lessons have been learned.

Dealing With Mortgage Terms And Conditions

Mortgage Terms And Conditions – The What, When And Why

When buying a house, the average person finds that it is something that will be impossible to do without borrowing money. This is why people get mortgages which, from all the doom-laden pronouncements about them, you would think were quite simply a bad thing. However, a mortgage when handled well is the little piece of freedom a person needs in order to benefit the quality of their life by securing themselves and their family a place to stay underneath one roof. The key part of that last sentence was the phrase “when handled well”. In order to make the best of a mortgage it is absolutely essential to be aware exactly how you plan to operate in the years to come. This is a large commitment, sometimes up to forty years’ worth of commitment.

Every mortgage comes with a full list of terms and conditions, and although these may be printed in small type and be worded in highly legalistic language they are still worth reading, ideally before you sign for the loan and complete the deal on the house. The terms and conditions of a mortgage agreement are legally binding and, once you have completed the agreement, you are bound to abide by them. Failure to do so can be met with financial penalties and worse, so it is worth remembering before you put pen to paper that this agreement will bind you for the life of the contract. Many people will give the document to their lawyer to look at, but it really helps to read it yourself, too.

Most of the terms and conditions of a loan are completely self-explanatory and even rather obvious when one thinks about them. This is why so many people fall into the trap of not reading what is written in them, and later find themselves to be in a situation where they have contravened their agreement and face a penalty for doing so. The terms and conditions will, in general, apply to matters such as prompt payment of monthly contributions, by the agreed method on the agreed date and, importantly, for the right amount. These are the elements which apply to all mortgages. It is the elements that apply to some and not others which cause people to have problems.

Most credit agreements have similar stipulations, but mortgages are a different thing from the typical credit account due to the fact that they are secured credit agreements with a term life that far exceeds just about any other loan. Different rules must therefore apply, and it is your mortgage which will be considered the “priority debt” if you ever go into a managed debt agreement or a bankruptcy. Having an awareness of the terms and conditions of your mortgage, and sticking to the letter of the agreement, is your best bet when it comes to running a mortgage well. Even if it seems boring, it will soon become second nature, and it should see you safely reach the point where you can pay the mortgage off in full.