Homeowners are under the legal and financial obligation to pay back their lenders after borrowing a sum to purchase a house. The terms and conditions of the loan repayment are often clearly defined in the agreement.
The loan document may contain details regarding the loans no credit check, principal sum, repayment amount and frequency, and the due date by when the entire loan needs to be settled. Essentially, everything related to the transaction is clearly laid out and well-defined by the lender and the borrower. Thus, you should never encounter a situation where you are unable to repay this loan.
However, unprecedented situations, such as a global pandemic or weakened economy, pose an entirely new set of challenges. Due to these factors beyond your control, you may find yourself in a position where you are unable to make your mortgage payment.
You may be attracted to the idea to miss your mortgage payments. However, this strategy would only emerge counter-productive and may cause more damage than good. Let’s explore.
Reasons Why You Should Not Neglect Your Mortgage Payments
If you are in a situation where you are unable to repay a loan and are considering skipping your mortgage payments, here is a list of reasons why you should avoid it at all costs:
It Damages Your Credit Score
Your credit score forms the basis on which banks and financial institutions issue loans to individuals. It is a well-known fact that failure to make your mortgage payments on time could result in you defaulting on the loan. Delaying this payment further will damage your credit score, which will make it progressively harder for you to secure a loan in the future.
Financial bodies are less keen on issuing loans to bad credit score holders because of the risks involved. As a result, the probability of getting a loan is not only low, but it is also possible that even if you do manage to get a loan, the principal would be way too low to meet your requirements.
Hence, you will lose all credibility for loan purposes. In this manner, you are cordoning off any possibility of getting a loan in the future.
You Will Pile On Debt
Merely deciding not to pay your mortgage will not automatically or magically dissolve your debt. On the contrary, it will add to the repayment value. The amount that you owe to the lenders will remain the same.
However, in addition to the initial amount and the mortgage payment amounts, you will also have to pay fines. Typically, the fine is a percentage of the borrowed sum and accrues every single day beyond the date of payment and subsequent grace period granted by the lender. To know more about the fines and late fees, you can go through the loan document carefully.
The fine and other liabilities will be clearly stated in terms and conditions of the loan agreement.
Lenders Will Pursue You
Naturally, money lenders are not going to give up without a fair and honest fight! The lender will first contact you through email or phone call notifying you about the missed payment. Following this, they will wait until the passage of the grace period to issue the Notice of Default.
In the event that you fail to respond to a Notice of Default, the lender may initiate the process of foreclosure of the loan.
You May Lose Your House
The retention of accommodation is one of the most crucial reasons to continue making your mortgage payments on time. Once the foreclosure process has been initiated, legal action will be taken against you.
At the same time, the lender may also file a lawsuit against you and commence the auction or sale of your house. A portion of the sales will go into the repayment of the sum outstanding with the lender. During this period, you will receive an eviction notice that will clearly state the date and time when you are expected to vacate the house.
What If Mortgage Payment Is Not An Option?
Making your payments on time is always the best course of action under any given set of circumstances. But you may legitimately not be in a financial position to make your mortgage payment.
In that case, here are some safe and effective alternatives:
Inform Your Lender
Speak with your lender to identify how you can modify the outstanding amount and adjust it in your future payments. For this short-term relief, you will have to credit club login and generate a request.
Find A Workaround For Your Loan
You could raise a request for loan forbearance. However, bear in mind that loan forbearance is merely a deferred loan and is subject to several eligibility criteria that you will have to satisfy to be eligible for it.
In case the issue is more sustained (such as being laid off from work), you can opt for a loan modification, which allows you to change the prevailing terms of the loan by decreasing your monthly payments and increasing your loan tenure.
Depending on your past mortgage payment history, you may also be offered a loan repayment plan that will add to the outstanding mortgage balance. Alternatively, the outstanding amount may be added to the end of your loan, thereby allowing you a loan extension.
Individuals can also file for bankruptcy at a court, which will assess your case and declare whether you need to stop making the payments to the mortgage lender. Naturally, this should be your last resort.
In all possible conditions, it is highly advised that homeowners make their mortgage payment on time. Even if there is a facility to defer this loan or to seek payment holiday, paying the mortgage on time will prevent any financial difficulties in the future. Fortunately, in the current scenario, the practice of repossession of homes is banned until 31st October 2020.
At the same time, if you are absolutely helpless in making the mortgage payment, consider discussing your condition with the lender first. Given the exceptional situation, it is highly likely that your lender will offer you an appropriate solution to your problems.