Are repayment plans effective in preventing foreclosure?

Catching up on a delinquent mortgage can be challenging. Here are ways to help you get back on track.

Life is full of financial ups and downs. Whether it’s a job loss, a medical emergency or an unexpectedly large car repair that’s caused you to miss a mortgage payment, or two or three, it isn’t too late to get back on track. This is especially true if you’ve recovered from the recent financial setback.

Now is the time to do a quick reassessment of your current financial situation to determine what monies are available to help get caught up on that delinquent mortgage. Set your spending priorities, and consider any other bills that are delinquent as well. Next, contact the mortgage holder to discuss options to remedy the situation. Most of the time, the first option offered to homeowners past due with one to three payments is a repayment option. This type of program is an effective way of getting the mortgage current in certain circumstances. If the financial emergency that caused the delinquency is over and regular payments are now affordable, but getting caught up all at once is not possible, then a repayment plan works well. Mortgage companies will usually offer this option to homeowners first, as it the simplest option and doesn’t change the terms of the original mortgage. For the homeowners, the repayment option avoids foreclosure, and the negative impact on your credit score will be less severe.

This option takes the amount past due and spreads it out over several months. At the end of that period, usually three to six months, the mortgage holder is current again. After that, regular monthly payments will resume. There may also be late fees included in the repayment plan.

An example of what a repayment plan looks like is shown below:

                Regular mortgage payments:       $1,000

                Number of payments past due:     X      3

                Amount past due equals:              $3,000

                Six month repayment amount:      $3,000/6 = $500

                New payments for six months:      $1,000 + $500 = $1,500

However, before entering into this agreement, make sure that making increased payments are possible over the next few months. Entering into this type of arrangement, knowing that the extra payments will incur a financial hardship indicates that it is not the best option to get the mortgage back on track. If this workout option doesn’t make good financial sense for the homeowner, then it will not be an effective way to be free from foreclosure. At this point, it would be wise to explore other options to solve the problem of a delinquent mortgage, and contacting a certified housing counselor is good way place to start.

Michigan State University Extension offers financial literacy and homeownership workshops throughout the year to help you become financially healthy. For more information of classes in your area, go to either the MSU Extension events page or MI Money Health. Additionally, you can take the Financial Health Survey at MI Money Health to assess if you’re financially healthy and discover more ways you can improve your financial health.  

MSU Extension has released a new toolkit for homeowners who are experiencing or have previously experienced foreclosure. This toolkit will equip these individuals and families with tools to help them recover their financial stability, in the case that a recovery of their home is not possible. The toolkit is available to download free at MIMoneyHealth.org.

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