Mortgage On Hold (7 Things You Can Do Today)
Due to the economy over the last few years, many homeowners have had difficulty paying their mortgages. To help these people keep their homes, several different programs have been offered that will place a halt on foreclosures and past due accounts, leaving very little or even nothing owed on a home.
What is a Mortgage on Hold?
Recently, you’ve probably read about people facing foreclosure because their mortgage payments have been put on hold. This problem is known as the “mortgage payment on hold.”
A “mortgage” is the legal interest in property that grants the owner of a property, or borrower, permission to borrow money from a lender. If this permission is not paid back as agreed upon by contract, the lender may possess and sell the property to recover what they are owed.
A “mortgage on hold” refers to a situation where a sale of a mortgaged property has been approved but executed by its current owner(s) instead of the lender. This situation is because no one has claimed ownership for an extended period (typically due to inability or refusal).
At this point, it isn’t much different than if lenders were given control over such properties because those who should be paying aren’t. This can create a problematic situation for lenders, buyers, and even current property owners if their interests are tied with the home in question.
A mortgage payment on hold occurs when your mortgage company stops processing your monthly payments for an undisclosed period. Usually, this happens when the servicer of your loan goes bankrupt. Servicers are responsible for making sure that you get paid according to the terms of your note and deed of trust. Once they stop processing your monthly payments, there’s no way for you to continue making monthly payments. If your lender finally does start processing payments again, it will often only pick up where it left off, meaning several months’ worth of back payments.
This can lead to foreclosure because of missed mortgage payments. If the servicer forecloses on your home while you are waiting for it to process your monthly payments, you’ll have to pay off several months’ worth of past-due payments before you get another chance at keeping your house. You essentially get one last opportunity to make up all the missed payments, plus penalties. If this is your situation, consider an “early redemption” offer from the bank that stops foreclosure proceedings temporarily and allows you time to catch up on delinquent mortgage debt.
What happens when a mortgage is on hold?
In general, lenders will not take part of any money from the sale of the mortgaged property but instead opt to recoup their losses from what is owed by taking possession of the property itself. This can be a costly process because it requires a legal claim to a newly sold property via eviction or through the courts if no one steps forward to claim ownership within a specific time frame after purchase (typically about 90 days).
In addition, foreclosure filings may be necessary depending on how much of an equity stake lenders have compared to current homeowners. If this is the case, the foreclosure filing will override any current ownership claims and hand possession of the mortgaged property over to the lender.
A mortgage freeze is when the interest rate charged on your loan stays at one amount. If there are no changes in your financial situation, the interest rate will remain the same for the life of your mortgage. This can happen even if interest rates drop. Many people choose this option so they don’t have to worry about their monthly payments changing throughout the life of their loan.
The advantage of this type of plan is that you know what you will pay each month. You secure that monthly payment, and it doesn’t change under any circumstances during the length of your loan agreement.
The downside, however, is that you end up paying more for your home than it’s worth because its value drops over time (as most commodities do).
How Does a Mortgage Freeze Work?
Typically, your home will increase in value over time. If this happens, you can take out equity with a refinance or sell that property and put the money into another mortgage with lower monthly payments.
When there’s no way to take out equity (such as during a mortgage freeze), it becomes more challenging to sell the house if the owners need the cash. This can make it harder to relocate for career opportunities later on – or even hard to sell if an emergency arises.
If you need to reduce your monthly mortgage payment, you might consider a “freeze” option. This allows you to lower your interest rate and decrease the monthly payments on an existing loan but leaves the loan balance locked in place.
Freezes work best for people who expect their financial situation to improve over time – usually, because they expect their income or housing costs will drop – and don’t want to deal with refinancing later on.
Most lenders will let you freeze up to 60% of the outstanding balance on a home equity loan or line of credit without charging a prepayment penalty, as long as:
- The request is made at least three months into the mortgage term;
- You have completed at least three consecutive monthly payments;
- You have a good payment history on the frozen portion of the loan;
- The total monthly payments, including interest and principal, equal no more than 40% of gross monthly income.
Lenders generally will not let you freeze a home equity line or open-ended home equity loan without charging a prepayment penalty.
Mortgage suspended is a term that refers to the halting of payments on one’s home loan. This usually occurs when an individual has recently suffered financial loss or setback, which has reduced their monthly income below what is required to make both house payments each month.
If this describes your current situation, you probably wonder where to go from here. To answer this question more fully, let us first look at how mortgage suspensions work and the options available once they have been put into effect.
As previously mentioned, one of the most common triggers for mortgage suspension is some financial loss or setback — particularly unemployment. Losing one’s job can be highly stressful for any homeowner, but it does not necessarily mean that they are now in danger of losing their home.
Mortgage payments are based on several factors, including the interest rate, monthly payment amount, and length of time you have made previous payments. If your financial situation is only temporary, it may be possible to go back to making these regular house payments once your financial straits have improved. On the other hand, things may not be as simple if you have suffered some long-term job loss or are facing a reduced income due to retirement, disability, or a similar situation.
Waiving Mortgage Payments
When homeowners fall behind on their mortgage payments, lenders may forgive the delinquent debt as a way of getting back some of the money they are owed. In some cases, creditors can even pursue a deficiency judgment for unpaid debt balance that would include court costs and interest amounting to hundreds or thousands of dollars more.
In those cases where mortgage companies agree to wipe away debt from past missed payments, there is a fine line between forgiving principal and canceling an interest-bearing loan altogether. Mortgage companies cannot adjust interest rates without loan documents specifying how much buyers will owe monthly installments.
However, some payment arrangements waive installments due to previous months’ missed or late payments. This triggers a situation where most states allow relief from liability for accrued but unpaid interest on the new lower amount of remaining principal.
Stopping Mortgage Payments
Stopping your mortgage payments is not advisable, but you may be able to do this temporarily with assistance from the courts. This might be an option for some struggling people due to unemployment or other short-term financial problems.
If you want to stop mortgage payments, this article is for you. There are two types of foreclosure: judicial and non-judicial. With a non-judicial foreclosure, the lender forecloses without going to court. Some lenders use non-judicial foreclosures because they can go through much faster than judicial. This means that when a bank goes with a non-judicial foreclosure, the foreclosure sale will be held sooner than it would in a judicial foreclosure process.
However, if you know how to work with the law and your lender processes your mortgage according to its procedures appropriately or at least tries not to violate any laws, you may be able to save your house from foreclosure.
Mortgage Forbearance (Pause Mortgage Payments)
Homeowners may receive up to 18 months of forbearance if they have a government-backed mortgage and experience COVID-19-related financial hardship.
To request forbearance relief from a federally backed mortgage loan, you must contact the loan servicing firm (the company to which you make payments) that services your loan. You do not need to submit extensive documentation—a letter detailing your hardship should suffice.
Your initial forbearance can be for up to 180 days, after which you can request an additional 180 days of forbearance. To be approved for forbearance relief, landlords of multifamily units must have been current on payments as of February 1, 2020. If they are eligible, they should submit an oral or written request to their servicer, who can approve the initial 30-day forbearance, with subsequent extensions of up to an additional 60 days.
If you’re behind on payments and think one of these options above could benefit you, you should contact your lender immediately to see if you qualify.