If you’ve fallen behind on your mortgage payments and you’re facing the threat of foreclosure, refinancing might allow you to keep your home. It may not be possible in all circumstances, but it’s an option worth exploring.
How Refinancing Might Be Able to Help
If you lost your home in foreclosure, your family would have to move out. Depending on the state where you live, the lender might get a deficiency judgment that would require you to pay the difference between what the lender sold your house for at auction and the balance you owed.
By refinancing your mortgage, you might be able to replace your existing home loan with a new one that would pay off your original mortgage, plus any past due amount. Refinancing your loan could help you avoid the negative impact that a foreclosure could have on your credit for years.
Refinancing would require you to pay fees and closing costs. In some circumstances, you might qualify for a lower interest rate than you have on your current mortgage, which could reduce your monthly payments.
What to Do If You’re in Default
If you’ve missed one or two payments, your mortgage is delinquent. If you’ve missed a series of payments, your lender may have notified you that your mortgage is in default. Depending on the terms of your loan, the lender may demand that you pay the principal balance immediately.
If you’ve fallen behind on payments, contact your lender. It may allow you to refinance and include your missed payments in a new mortgage.
Is Refinancing Possible?
When you miss mortgage payments, your lender will report that to the credit reporting agencies. That negative information can lower your credit score. Missing multiple payments will result in an even greater hit to your credit. If you have missed several mortgage payments and have a low credit score, you may have trouble refinancing your mortgage.
Make a list of all your debts and recurring expenses, and compare that to your income. Figure out if there is a way that you can cut your expenses or increase your earnings. If possible, make at least one mortgage payment before you try to refinance to show that you’re making a good-faith effort to get current on your loan.
Refinancing will be difficult if you’re in default, but it may be easier if you experienced a financial hardship, such as a job loss or medical problem and if you have substantial equity. If you lost your job or owe more than your home is worth, you may qualify for a government refinance program.
Address the Problem Before Things Get Worse
If you can’t pay your mortgage, the worst thing you can do is delay dealing with the situation. Don’t ignore any letters from your lender about missed payments and default. Avoiding the issue or waiting to act can increase your risk of losing your home.
