How do adjusted mortgages play out?

If you contacted your mortgage provider about a forbearance and were approved, you might be wondering how repayment works. The good news is that you’re not expected or required to repay your missed mortgage payments in one lump sum. There are several common options you might be presented with – each with its own benefits and drawbacks. Here are several options you might receive and the facts about each:

1. Repay in one lump sum.

If you have the financial means to repay your mortgage in one lump sum, this is a great option to pursue. Of course, it requires a large lump sum of money up front. But, you do not accrue additional interest, and you can enjoy the relief that comes from paying off the debt. However, this is not an expectation, and you should not put yourself in a financial bind to pay off missed payments in one lump sum.

2. Pay more toward your mortgage each month for a period of time.

Your lender might allow you to increase your monthly payment for a period of time until the amount of your missed payment is satisfied. The benefit that comes with this option is that you do not extend the life of your loan, and therefore do not pay more in interest over time. However, this option might not be feasible if you are still experiencing financial hardship or have a restricted budget.

3. Add your missed payments to the back end of your loan.

Your lender could allow you to add missed payments to the end of your loan, extending the life of your mortgage by several months. If you cannot afford to make additional payments now, this is a great option. However, you will end up paying more over time for your loan as you will accrue additional interest. The additional expense over time could vary greatly depending upon the value of your home and the terms of your loan.

4. Adjust your loan payments entirely and extend the life of your loan.

If your financial circumstances have changed and your current mortgage payment is no longer feasible, your lender may allow you to adjust the terms of your loan in a way that lowers your monthly payment. This is a great option if you are looking for a way to keep your home and fear that you won’t be able to make payments if your monthly mortgage stays the same. However, adjusting the terms of your loan could impact your interest rate and will likely extend your mortgage, meaning you will pay more in the long run. But, a home is an investment, and this is a great option that will allow you to stay in your home long term.

5. Place missed payments into a junior lien, which must be repaid if you refinance or sell your home.

Some mortgage lenders will place a junior lien against your home for the total sum of your missed payments. This sounds more intimidating than it is – really, all it means is that when you sell your home or refinance your home, you have to pay back the loan before you can take a profit. So, if you’re going to sell your home for a $15,000 profit, and your lien is $3,000, then you’ll actually take home $12,000. This option cuts into future earnings but doesn’t impact the life of your loan or your interest rate.

It’s important to remember that each of the options above might not be presented to you. You’ll have to talk with your lender about your options to determine which is best for you. If you’re struggling to choose between repayment plans, talk with the housing counselors at United Housing by calling 901-272-1122.