Since the housing market downturn took hold in 2007, lenders have gotten inventive when helping homeowners who have defaulted or are in danger of defaulting on their mortgages. While creditors can cancel, or forgive, a part of a homeowner’s debt, particularly in the event the homeowner is in an unaffordable loan, deferment options are different. Under a deferment scenario, homeowners are still on the hook for the payments a lender has agreed to put to the back burner.
Repayment Plan/Reinstatement
Since HUD notes, homeowners must phone their lender in anticipation of missing a mortgage payment. In the very least, borrowers must make the call soon after missing a payment. The more payments a homeowner misses, the closer she goes toward foreclosure. The Federal Trade Commission (FTC) asserts that banks frequently agree to a repayment plan, where the homeowner pays the past due amount as time passes by adding portions of it to his regular mortgage payment. Similarly, a reinstatement involves paying the entire past due amount, plus penalties and interest, by a mutually agreed-upon date. The FTC points out that these choices are best for homeowners with short-term mortgage issues.
Forbearance
Under a forbearance, a mortgage lender agrees to suspend or lower a homeowner’s mortgage payment for a particular duration. Unlike reinstatement or a repayment program, which are inclined to occur after a homeowner has fallen behind on payments, a forbearance is a proactive measure. In the end of the forbearance period, the FTC explains that periodic monthly mortgage payments resume along with a lump sum or partial payments for the delinquent amount.
Extension
An extension is much like the above-mentioned alternatives; however, as Bank of America particulars, after a forbearance period, the missed payments have been tacked on to the end of the homeowner’s loan, extending its duration. According to Bank of America, this option is feasible if the homeowner is less than 90 days late on her loan and dealing with a temporary financial issue.
Balloon Payment
Some mortgage aid programs, including the president’s Making Home Affordable modification program, utilize a balloon payment. A modification alters the conditions of a home mortgage in an effort to create the monthly payment much more manageable for the homeowner. Frequently the lender chooses to lower the principal balance of this loan to attain this goal. As the Building Home Affordable website information, sometimes lenders require that the homeowner to pay back the amount of the principal reduction at the end of the loan or on a refinance or purchase. This payment is called a balloon payment.