Lower your mortgage payment without getting a new loan
A lot of people bought on adjustable ARMs, or option ARMS. Or exploding ARMS. I just had dinner over the weekend with friends and heard a friend-of-a-friend story. They bought a house for $5000 per month in payments three years ago. Undoubtedly they thought they'd make oodles of dough. In three years, which is now, the loan resets upwards to maybe $9000 per month. They couldn't afford $5000 and $9000 is a pipe dream.
Oh, and did I mention that the houses in the neighborhood are littered with for-sale signs? And that the agents say flat out there are "no buyers anywhere."
So, these people should get on the phone to their lender and explain the dire situation they are in. Make it the lender's problem.
Don't ignore your lender. Don't fall behind on your payments and simply withdraw like a turtle into its shell.
Talk your way to lower loan payments
The biggest mistake people make in this situation is not communicating with the lender. You have no idea of the amazing things you can do in this situation, but only if you are willing to get on the phone and write a letter or two to your lender.
The lender has a big problem. They could get a house back and lose hundreds of thousands of dollars. Or, they could work with this family so that the family could stay in the house.
On the one hand, the lender loses hundreds of thousands. On the other hand, the lender doesn't have these massive writeoffs. Which choice would you make if you were the lender?
Exactly. The lender would love to work things out with these people if at all possible.
Some things can can be done:
Take the delinquent amounts, the late payments and fees, and tack them onto the loan balance. Now the homeowners no longer have to cough up all the payments and late fees and charges to bring the loan current. The lender will make the loan current by rolling up all the past due amounts into the loan.
Second, the interest rate is too high. The homeowners can't afford those payments and the lender is facing a foreclosure and writeoffs. Since homes aren't selling in that neighborhood, the lender doesn't want to get stuck with another house. And yet, the homeowners want to stay in their house. They don't want to move.
Now, lower your interest rates
So the homeowners should ask the lender to slash the interest rate. From 8% or whatever it is, to 3% or 4%. An interest rate that the homeowners can afford.
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If the lender lowers your interest rate, that would be fantastic.
There are other possibilities, though, such as lowering the payment and tacking on additional principal to the loan, basically negative amortization. But I wouldn't negotiate for that if I were this family. I'd go for a period of, say, 36 months interest only at 4% if that is what I could afford. Then in 36 months we'd see how things were at that time and go from there.
Point is, there are a lot of things that can be done if a family who faces a payment reset or foreclosure situation gets in touch with their lender.
Okay, but what if you are in a situation where you simply can't afford to keep your house, no matter what?
I would try to sell now if I still owned real estate and I didn't want to own it for ten or more years. There may still be time to leave the sinking ship. But if you wait until Spring, or wait until it "bounces back", and you have a short fuse, you are making a big mistake.
And what if you owe more than it's worth?