How to negotiate a lower mortgage rate
If your mortgage is taking too much of your budget, you’re not alone. On average, mortgage debt accounts for about 69% of total household debt in the country – more than any other type of debt combined, according to the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit.
If your budget is strained under the weight of your mortgage, you may be able to find some relief. Fortunately, you have options for reduce your monthly mortgage payments. However, the path you take to get these lower payments will depend on your financial situation.
Look in refinancing
You may be able to lower your monthly mortgage payments by refinancing if your home has risen in value since you bought it and interest rates have fallen since you locked in your mortgage rate. Millions of homeowners could save hundreds of dollars a month by refinancing, according to a report from Black Knight Financial Services.
The higher your credit rating and the higher the equity in your home, the better your interest rate will be when you refinance and the lower your payments will be. To get the best rate, you need a credit score of at least 740 and at least 20% of the equity in your home, said Jason van den Brand, CEO of the mortgage refinancing company. line. Lenda.
Be sure to shop around for the best refinance rate and deal. Check with your current lender as well as others including online options. When comparing rates, look at the annual percentage rate, or APR, offered by lenders, as that is the actual cost of a loan reflected in a single digit, van den Brand said.
But if refinancing isn’t an option for you, you might still be able to negotiate a lower mortgage payment if you’re really having trouble paying off your loan.
Contact your lender
If you’re having financial difficulty, contact your lender to discuss ways to lower your mortgage payments before you fall behind schedule, said Joe Parsons, senior loan officer at PFS funding in Dublin, California. “The lender wants to find a solution,” he said. Also, if you miss payments, your credit rating will drop, which could force you to pay higher rates in the future or affect your ability to get credit.
Most likely, the bank or financial institution that gave you your loan sold it, and now a mortgage agent is handling your loan. So check your monthly billing statement or payment coupon book for the toll-free number to contact your service agent to discuss your options.
When you call, explain your situation and ask what your options are. If you haven’t yet missed a payment, the loan manager might be willing to push back your mortgage due date to give you more time to make a payment, van den Brand said.
You might even be able to negotiate a loan modification before you fall behind on your mortgage, Parsons said. You will need to provide documents proving that you are in financial difficulty and that you cannot pay your current payments.
However, the mortgage manager might not be willing to change your loan until you’ve already missed a payment or two, van den Brand said. If you become a delinquent, your mortgage agent will be required by federal rules to contact you to let you know what you can do to avoid foreclosure, according to the Consumer Financial Protection Bureau. You must also complete an application for the mortgage manager to assess whether you qualify for mortgage assistance.
Get help from a housing counselor
You can get help modifying your mortgage for free from a housing counseling agency licensed by Housing and Urban Development (HUD).
“They are experts who have helped hundreds of homeowners in similar circumstances. They have the expertise and knowledge to give you an honest assessment of your situation, outline your options, and help ensure that if you contact your mortgage agent to request a loan modification, your application doesn’t get lost ” said Sean Coffey, a former housing advisor who has now become media and development manager for California Reinvestment Coalition, a consumer advocacy group. To find a HUD-approved counselor, visit MakingHomeAffensible.gov.
Housing counselors can help you put together the documents and information you need to get mortgage modification or assistance, Coffey said. They can tell you what your deadline looks like in terms of how quickly you need to act to avoid foreclosure. And they often have relationships with people in banks or mortgage agents, so they can litigate on your behalf.
Consider a federal mortgage modification program
There are a variety of state and federal programs that can help struggling homeowners refinance or modify their mortgage. Housing counselors are familiar with these programs and ask if you qualify, Coffey said.
Many federal mortgage modification programs are part of the Obama administration’s Making Home Affordable plan, which has helped more than 1.5 million families. Most Making Home Affordable programs are available to homeowners who received a mortgage on or before January 1, 2009 and owe up to $ 729,750. These programs are designed to help homeowners lower their monthly payments:
Affordable home modification program (HAMP) reduces monthly mortgage payments to 31% of monthly pre-tax income by adjusting the rate, extending the term or reducing your principal. Homeowners typically save $ 500 per month. You may be eligible if you have experienced financial hardship and are late or in danger of missing payments.
Affordable Home Refinance Program (HARP) helps homeowners with a mortgage owned by Fannie Mae or Freddie Mac who owe more than their home’s value by switching to a lower fixed rate mortgage.
Home Affordable Unemployment Program (UP) can help if you are unemployed and delinquent, or in danger of falling behind on your mortgage. This program suspends or reduces your mortgage payments to a maximum of 31% of your gross income for a period of up to 12 months.
Short FHA refinancing, offered by the Federal Housing Administration, allows homeowners who are up to date with their mortgage payments, but owe more than the value of their home, to reduce their principal by at least 10% by refinancing themselves into a mortgage insured by more affordable FHA.
Hardest hit fund (HHF) offers mortgage payment assistance for unemployed or underemployed homeowners in 18 states and the District of Columbia. Eligibility varies by state.
Improve Your Chances of Getting a Modified Mortgage
As soon as you realize your mortgage payments are too high for you, contact your mortgage agent or housing advisor. “You want to start early because it can be a long and tedious process, and you don’t want to rush out for a change a week before you lose your home,” Coffey said.
The information you will need to provide to get mortgage help can vary depending on your situation and your lender, according to Making Home Affordable. In general, however, you will need your monthly mortgage statement, two recent bank statements, the two most recent federal income tax returns, recent pay stubs or an income statement if you are self-employed, documentation of any additional income. or benefits – such as Social Security – you receive, an unemployment benefit letter if you’ve lost your job, and information about your savings and other assets.
You will likely need to write a letter explaining why you are having difficulty paying your mortgage. Your agent might also want to see that you are taking action to rectify your financial situation, Coffey said. So if there is some extra expense that you can cut back, like eliminating cable TV or an expensive wireless plan, you want to show it.
After you have submitted all the necessary information, do not wait for your repairman to call you. “Be the squeaky wheel that gets the grease,” Coffey said. Contact your repairman to confirm your documents have been received and check every two weeks or so to see where you stand, Coffey said. If you think the service agent is making mistakes or treating you unfairly, file a complaint with the Consumer Financial Protection Bureau.
It is important to recognize that you have options to lower your monthly mortgage payments if you are experiencing financial difficulties. Explore them with your loan officer or housing counselor to find the best fit for you.
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Cynthia Measom contributed to the writing of this article.
Last updated: October 22, 2021