Behind on Mortgage Payments, What Can You Do? Your Best Options if you Fall Behind

If you’re behind on mortgage payments in New York, it’s important to take a step back to understand the situation you are in so that you can quickly take the action needed to address the issue. In this post, we discuss what you can do and what options you have if you are falling behind on your monthly payments.

What Happens When You Miss Mortgage Payments?

Missing a mortgage payment can be a stressful and overwhelming experience, especially if you are not sure what the repercussions are. If you miss a mortgage payment, you may be charged a late fee by your lender. The loan servicer will typically offer a short grace period of 1-2 weeks where the fee will be waived, but if you start to make a habit of it, they may not continue to be so kind.

While it doesn’t typically happen immediately, missing a mortgage payment can also affect your credit score. Your credit score is an estimate of your creditworthiness, and it is impacted by a variety of factors, including your payment history. Typically loan servicers won’t report a single missed payment, especially if you have a history of paying on time, but if you start to miss multiple payments or frequently miss payments, you are definitely at risk of your delinquency being reported to the credit bureaus which can negatively impact your credit score.

The lender will typically reach out to you after you’ve missed 1-2 payments and your loan is considered to be in default or “pre-foreclosure“. You can use this interaction to explain your situation, and depending on the circumstance, they may work with you to come up with a temporary plan to address the issue.

Ultimately the lender will start the process of foreclosure. New York is a “judicial foreclosure” state, which means that foreclosures go through the courts. The official foreclosure process is kicked off with the lender filing a lis pendens with the court. In New York, this process takes a long time, with the average process taking about two and a half years. While this may seem like a long time, foreclosure is the worst option and will make it the hardest for you to start over and buy another home, so taking quick action can potentially avoid foreclosure.

How Far Can you Get Behind on Mortgage Payments?

As mentioned above, the foreclosure process in New York takes around two and a half years on average, but many cases take even longer. There is even a story about someone on Long Island who delayed foreclosure for up to 20 years. During this process, if you are not making your monthly payments, your debt will continue to accrue along with interest and penalties. The biggest risk here is that your debt will balloon and eliminate any equity you may have had in the home. When this happens and the home is worth less than they owe, homeowners often opt for a short sale to avoid foreclosure.

How Many Homeowners are Behind on their Mortgage

It is difficult to accurately determine how many homeowners are behind on their mortgage payments at any given time. However, the overall rate of mortgage delinquency (the percentage of homeowners who are behind on their mortgage payments) in the United States tends to fluctuate over time and can be influenced by various factors such as changes in interest rates, employment, and the overall health of the housing market. According to data from the Mortgage Bankers Association (MBA), the rate of mortgage delinquency in the United States was 3.47% as of the second quarter of 2021.

What to Do if you are Behind on Mortgage Payments

If you’re struggling to make payments on your home loan, there are steps you can take to try to resolve the issue and get back on track. First and foremost, it’s important to communicate with your lender and let them know that you’re having difficulty making your payments. Your lender may be willing to work with you to come up with a solution, such as a temporary payment plan or a loan modification. The first thing you should do if you are falling behind is to reach out and discuss your forbearance options. It is important to remember that the lender doesn’t want to have to foreclose on the home, so it’s in their best interest to pursue other paths as well.

Forbearance or Installment Payment Plan

Mortgage Forbearance and payment plans are when your lender is willing to temporarily suspend payments, accept partial payments, or reduce your monthly payments so that you can get back on your feet. Forbearance was required by the federal government during the COVID-19 pandemic as part of the CARES Act to help those suffering from financial hardship as a result of the coronavirus. While lenders are no longer required to offer this option, they are often willing to work with their borrowers to come up with an arrangement that will get them paid back. This is great for people facing short-term hardships as the repayment plan for the missed or reduced payments typically involves adding them to the back of the loan or paying them in a lump sum at the end of the forbearance period.

Loan Modification or Refinance

A loan modification is adjusting the terms of your loan to change the term length or interest rates, with the goal of reducing your monthly payment to one that you can afford. What is great about a loan modification is that you can avoid the expensive closing costs of a refinance. However, if the lender is unwilling to go ahead with a “loan mod” you always have the ability to refinance. However, with the higher rates in 2023, refinancing will be a less common strategy as payments will likely go up from the historically low rates we had in the prior years.

Federal and Local Assistance Programs

You may also be able to get assistance through programs like the federal Making Home Affordable program or the New York State Homeowners Assistance Fund, which are programs that provide support to homeowners who are struggling to make their mortgage payments. This program offers a variety of options, including refinancing and loan modification, to help homeowners get back on track with their mortgage payments. If you’re facing financial difficulties and are worried about being able to make your mortgage payments, don’t hesitate to reach out for help – there are many government and non-profit resources available to assist you.

Selling Your Home to Avoid Foreclosure

Assuming you have equity in your home, selling is always an option. Selling your home and moving into a less expensive property or becoming a renter can be a great way to reduce your monthly overhead. By attacking the issue head-on, before your credit gets heavily damaged by extended default or foreclosure, you can position yourself to purchase another home in the near future.

Conversely, if you don’t have equity in your home, you can look into the short sale option. A short sale specialist will negotiate with the bank to convince them to accept less than what you owe. Assuming the bank approves the short sale, you can move on with minimal impact on your credit. If this is something you are interested in pursuing, contact us to see how we can help.

How to Prevent Falling Behind on your Mortgage in the Future?

Discuss strategies homeowners can use to avoid falling behind on their mortgage payments, such as creating a budget, building an emergency fund, and staying up to date on market trends

If you have fallen behind and managed to catch up, you’ll want to focus on how to avoid getting back into this situation again in the future. Preventing mortgage payment problems before they happen is crucial for protecting your home and your financial well-being. Here are some strategies you can use to avoid falling behind on your mortgage payments:

  1. Create a budget: Having a budget can help you understand your financial situation and make sure you have enough money to cover your mortgage payments and other expenses. Make sure to include your mortgage payment in your budget and try to stick to it as closely as possible.
  2. Build an emergency fund: Life is unpredictable, and unexpected events such as a job loss or medical emergency can make it difficult to make your mortgage payments. Building an emergency fund can help you weather financial storms and make it easier to keep up with your mortgage payments even if you experience a temporary setback.
  3. Stay up to date on market trends: Knowing what is happening in the housing market can help you make informed decisions about your mortgage. If interest rates are rising, for example, you may want to consider refinancing to a fixed-rate mortgage to lock in a lower rate.
  4. Communicate with your lender: If you are experiencing financial difficulties or think you might have trouble making your mortgage payment, don’t be afraid to reach out to your lender. They may be able to work with you to come up with a solution before things get bad.

Conclusion

It’s important to remember that missing a mortgage payment can have serious consequences, including the loss of your home. If you are struggling to make your mortgage payments, it is important to act quickly to try to resolve the issue and avoid falling even further behind. Reach out to your lender to discuss your options and consider seeking help from a housing counselor or exploring government programs that may be able to assist you. By taking proactive steps to manage your finances and stay informed about the housing market, you can increase your chances of avoiding mortgage payment problems and staying in your home.

What To Do If You're Behind on Mortgage Payments