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How to Avoid Falling Behind on your Mortgage

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Most people find themselves in unexpected financial situations where they worry they may not be able to make their mortgage payments on time. Perhaps a medical emergency has arisen, you’ve lost your job, or the interest rate on your home loan has increased beyond your means. It’s important not to panic and take the correct steps to ensure you rectify the situation before it gets worse. Nonaction is your worst action when you know you’re struggling to meet your mortgage repayments.

Discuss the Situation with Broker or Your Lender

The first reaction to falling behind on your mortgage repayments can be to stick your head in the sand and hope for things to get better soon.

Understandably mortgagees or mortgage holders may choose to avoid contacting their mortgage lender, thinking highlighting their predicament might result in an audit of their finances and debt servicing ability.

While the review or audit alone is okay, what’s worrying is if it triggers the cancellation of the loan or if the lender requests a top-up. A top-up is where the mortgagee must find funds to reduce the loan principal. Chances are, if you’re struggling to meet the loan repayments, you’ve probably not got savings or access to further funds for the top-up.

Ideally, you’ve used a broker, and approaching that professional for their recommendation can be your first move, which is much less scary. Mortgage brokers or advisors can get ahead of whatever action a lender may want by identifying where their client can secure a top-up loan.

However, suppose your need to go direct to a lender. What’s worth knowing is home loan lenders are not in the business of making repossessions – their daily business of making money through the interest rates on loans, so their preference is for you to make the repayments which include their interest fee. Forcing a foreclose is a messy business for a lender, and they don’t want to be saddled with a pre-owned house and the expense of trying to sell it on the open market while it sits there, earning them nothing.

A better outcome is the lender modifies the loan and changes the repayment plan to suit your situation better. This can be a permanent change, such as increasing the number of years to pay your mortgage back over, or a temporary change until your financial situation becomes more stable.

You may need to add some additional investment, and offering to pay something, even if it is a small amount, keeps the wolves from the door and shows the lender that you’re serious about retaining your home and repayment commitments.

Manage Your Money

To avoid sinking deeper into debt, begin tracking all the debt you owe and all the money that comes in and goes out of your household. Knowing exactly how much money you have each month and where it all goes allows you to find ways to reduce outgoings so that you can repay your debt more quickly.

You will probably have multiple debts. The most considerable amount of debt is not necessarily the debt you should pay back first; you should concentrate on obligations that can result in legal action being taken against you. These include mortgages, secured loans, taxes, and utility bills.

After these debts are taken care of monthly, the next thing is to consider the interest rates on each of your debts. A car loan at 7.5% is not such a drain on your finances as a credit card debt at 29.9%, for example. Paying off your high-interest debts first means you will pay less interest overall in the long run.

Short Term Loans

Be wary of taking on more debt to pay off old debt, but it can work to your advantage if you do it correctly. For example, many people take out a car title loan on their vehicle that releases most of the value stored in their car. The lending company has security on your loan in the form of a vehicle to offer better interest rates than unsecured personal loans.

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If you have an amount of credit card debt accumulating at a high-interest rate, paying it off with the money from a car title loan can leave you with a more manageable repayment. This is especially true if you are becoming delinquent on payments, as you will suffer heavy penalties for late payments.

Aside from this, intelligent debt consolidation can help but be wary of foreclosure specialists that promise to save your home for a fee. Check with the Better Business Bureau if you are unsure.

Financial hardships hit us all at once, but getting out of a hole takes a little planning and dedication. Almost anyone can avoid falling behind on their mortgage repayments if they take a realistic and clear-eyed view of the situation.

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